Interpretive Opinion No. 71 / 55F

State of California Department of Corporations

Brian R. Van Camp, 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 Caldwell
Attorney at Law
Suite 300
199 North Lake
Pasadena, CA 91101

Dear Mr. Carson:

The request for an interpretive opinion contained in your letter dated September 7, 1971, as supplemented by your letter dated September 28, 1971, has been considered by the Commissioner. Your letter raises the question whether the fees charged by APO of America, Inc., a California corporation ("APO") , to its distributors constitute franchise fees within the meaning of Section 31011 of the Franchise Investment Law, and if so, whether they are covered by the exemption provided by Rule 011.

You have represented that APO proposes to establish. a multi-leveled sale plan for the distribution of vapor injector devices for use on automobiles. Under this plan, a distributor will pay an initial fee of $85 for which he receives a starter kit, including a vapor injector, a power pack of economy fuel, a literature pack, a record book and a brief case., all valued at $60. The $85 fee also covers $10 for a bond and $15 for registration.

You have further represented that the agreement may be renewed annually by a distributor who is not in default on payment of a renewal fee of $15 plus $10 for renewal of the bond.

Section 31011 of the Franchise Investment Law defines "franchise feel" to mean any fee or charge that a franchisee or subfranchisor is required to pay or agrees to pay for the right to enter into a business under a franchise agreement, including, but not limited to, any such payment for goods and services. The purchase or agreement to purchase goods at a bona fide wholesale price is not considered the payment of a "franchise fee" pursuant to Section 31011 (a), and Rule 011 of the Commissioner exempts from the registration requirement of section 31110 of the. Law, any offer or sale of a franchise which would be subject to registration solely because the franchisee purchases or agrees to purchase goods at a price other than the bona fide wholesale price, if the total payment in excess of the bona fide wholesale price computed on an annual basis does not exceed $100..

The. Commissioner is of the opinion that the total amount of $ 85 payable by distributors in the instant case could be attributed to the purchase price of goods, and that the exemption from registration provided by Rule 011 is therefore available.

With regard to the renewal of the franchise, we call your attention to Section 31018 of the Law which provides that such renewal is not an offer or sale if there is no interruption in the operation of the franchised business. by the franchisee.

Dated: San Francisco, California
November 12, 1971

By order of
Commissioner of Corporations

By __________________

Assistant Commissioner
Office of Policy