If you are filing a franchise renewal application in California, then you will need to do so earlier this year if you want to take advantage of the state's automatic effectiveness rule. A revision to Cal. Corp. Code §§ 31116 and 31121 increases, from 15 to 30 business days, the length of time that the Commissioner of Business Oversight has to review franchise applications and franchise renewals under California's Franchise Investment Law.
Under California law, franchisor's registration period expires 110 days after a franchisor's fiscal year end. The result being that franchisors with a December 31 fiscal year end must file a complete application (including audited financial statements for the franchisor's prior fiscal year) in early March now to take advantage of the automatic effectiveness statute. Practitioners who oversee the state renewal process for their franchisors can imagine how difficult it will become to gather the information needed to submit the application in a timely manner.
While many franchisors use the automatic effectiveness deadline for filing renewals, applicants always run the risk of receiving a request by an examining regulator to postpone automatic effectiveness if the regulator cannot complete his or her review by the registration expiration date. While practice differs and whether right or wrong, many franchisors will agree to the request since the state can issue a stop order or cease and desist. Therefore, some practitioners argue that automatic effectiveness is not that important
Regardless, the rule change will result in fewer applications qualifying for automatic effectiveness. For franchisors who will work to meet the new deadline, it is important to keep a careful calendar and remember that 30 "business" days will not include weekends or holidays, including California's state holiday, Cesar Chavez Day.
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