Interpretive Opinion No. 71 / 3F

State of California Department of Corporations

Anthony R. Pierno, Commissioner
In reply refer to: File No. _____

This interpretive opinion is issued by the Commissioner of Corporations pursuant to section 31510 of the franchise investment law. It is applicable only to the transaction identified in the request therefor, and may not be relied upon in connection with any other transaction.

Mr. John Hatch
Legal Department
McDonald's Corporation
221 North LaSalle Street
Chicago, IL 60601

Dear Mr. Hatch :

The request for recognition of an exemption pursuant to Section 31101 of the California Franchise Investment Law, contained in your letters dated January 18, 1971, and February 1, 1971, has been considered by the Commissioner. In your letters, you seek this exemption for the offer and sale of franchises in the State of California by McDonald's System of Calif., Inc. ("System"), a subsidiary of McDonald's Corporation ("McDonald" ). On the basis of the representations contained in your letter and the assumptions made by us, as stated below, the exemption asserted by you, in our opinion, is available.

Section 31101 of the Franchise Investment Law Provides that there shall be exempted from the disclosure and registration requirements of Chapter 2 of Part 2 of the Law, subject however to the disclosure requirements of Section 31101 (c), the offer and sale of a franchise, if the standard as to financial condition set forth in Subdivision (a) of Section 31101, and the standard as to scope of operations set forth in Subdivision (b) of the Section are met.

You have represented that System is a subsidiary of McDonald, and we therefore assume that McDonald owns at least 80% of system. You have also represented that McDonald has a net worth in excess of $5,000,000. A copy of its audited consolidated financial statement as at December 31, 1969, submitted by you, reflects this net worth. Furthermore you have stated that .McDonald's subsidiaries have conducted businesses of the type subject to the franchises in question for at least five years prior to January 1, 1971. We therefore assume that System has conducted such business for said five year period.

In our opinion, the exemption provided in Section 31101 of the Law is available, if and only if we are correct in further assuming that the aforementioned financial statement. is the most recent audited financial statement of McDonald, and moreover, that System itself, according to its most recent audited financial statement, has a net worth of not less than $1,000,000.

Dated: San Francisco, California
February 26, 1971

By order of
Commissioner of Corporations

Assistant Commissioner
Office of Policy