On Monday the Department of Corporations in California revoked franchise registrations of two franchising companies. In a Press Release the Department said; “The CDC has taken enforcement actions that have resulted in the revoking of registration of two franchise businesses operating in California... also ordered to stop the offer and sale of unregistered franchises in the state.” There reasoning was that the two companies in question had not completed registration or sent in paper work on time or completed the forms. What the Department of Corporations did not tell you was that they are known in the franchising industry as being the most inept of all franchise registration states. The American Bar Associations franchise forum has had many a franchise attorney admonish the Department of Corporations. I can personally say we had our registration application in limbo for 10-months due to the Department of Corporations ridiculous bureaucracy. (I run the company;
http://www..CarWashGuys.com ).
What so many regulators are not understanding is that they are causing these issues due to such things as Sarbaines Oxley rules making mandatory audits by franchise registration states nearly impossible to get done on time to fulfill other registration regulations. California is considered the very worst state in the United States to do business as a franchisor and by revoking the registration rights of these two companies they are making matters worse for California. California is also a sue happy state and considered the worst place to do business of any type.
In these two revocations the Department of Corporations said: “Our department took this action to protect purchasers of franchises from fraudulent sales practices,” said Acting Commissioner Wayne Strumpfer. “These franchises were not authorized and put the purchasers involved at risk. Our department will continue to aggressively take action against franchising businesses who fail to follow our state laws.”
Trying to comply with the California Department of Corporation’s randomly enforced franchise statues is impossible and even Arnold the “Governator” is impotent against such a run away bureaucracy and no Viagra SPAM can save him now. The Department of Corporations is turning more businesses away every day. Calling businesses fraudulent because they did not fill out a form on time or could not get their audit in 90-days from the time of the filing due to shortage of accounting firms able to deal with increased liability of doing audits with errors and omissions insurance up five times that of two-years ago is ridiculous. These companies are not fraudulent they are trying to promote their businesses, provide jobs to California and help with the tax base as California is in more debt than most credit card limit maxed consumers.
The Department of Corporations said that one of the companies “in March of 2004 submitted an incomplete application for registration renewal. The franchisor’s registration expired the following month. In spite of the expiration of their registration, they had sold four franchises to California residents who were not informed that they were purchasing unregistered franchises.”
There is nothing wrong with the offerings or business model only the paper work and the Department of Corporations will not come to terms with their ridiculous registration process. They treat all companies like they are criminals when the Department of Corporations is raping the business community, molesting the consumers and destroying free enterprise by blocking our right to free contract. The Department of Corporations is simply pandering to complainers and soliciting complaints while providing the right to be irresponsible to the public, while committing atrocities against the business community far worse than anything we read in Ayn Rand’s novels.
The two companies in question sold a total of ten franchises, which provided over 100 jobs to Californians. But the Department of Corporations in their haste to prove toughness and get out some PR in the media to save themselves from the government budget axe went forward to attack good companies. Who needs such a worthless agency. Not mentioned in the Press Release was the fact that the Department of Corporations has made things so hostile to franchisors that less than a third of all franchise companies choose to even bother with the once Seventh Largest Economy of the world, now not even vying for tenth. If California’s budget woes are not fixed and the real estate market collapses you can thank the Department of Corporations for it all, they have not got a clue.
The business community has been damaged and it is hard to say what remedy of law can make them whole again. One thing is for certain; The Department of Corporations needs to get the budget axe and all those attorneys and regulators need to be out on their butts and pushing shopping carts if we are ever to get California back to her full strength.
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