Commissioner's Opinion No. 76 / 1F

State of California Department of Corporations

Willie R. Barnes, 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. Michel A. Thompson
Gage & Tucker
1000 Bryant Building
Kansas City, Missouri 64106

Dear Mr. Thompson:

The request for an interpretive opinion, contained in your letter dated July 29, 1975, as supplemented by the letter of Mr. John H. Kreamer of August 4, 1975 and your letter dated September 4, 1975, has been considered by the Commissioner. These letters raise the question whether the offer and sale of franchises by Realex Corporation, a Missouri corporation ("Realex"), doing business in California as "Florida Plastics", is exempt from the registration requirement of Section 31110 of the Franchise Investment Law ("Law") by virtue of Section 31101.

You have represented that Realex purchased all of the issued and outstanding shares of Florida Plastics, Inc. ("Florida" ) from the individuals who were operating the business of that corporation. Subsequent to its acquisition, Florida was liquidated and dissolved as a separate entity and its business has been operated as a division of Realex. Florida, and now Realex, has been in the business of manufacturing and selling plastic letters, graphic systems, and accessories for the sign trade for 26 years. Florida began franchising in the mid-60's and by 1970 had in excess of 25 franchisees. Realex has nearly 50 franchisees located throughout the United States, and Canada. Realex proposes to expand and modify the existing franchise program and to include dealers in California. At present, Realex owns and operates a wholesale outlet in California but has no dealers in this state.

Section 31101 of the Law exempts from the disclosure and registration requirements of Section 31110 the offer and sale of: a franchise, if the standard as to financial conditions set forth in Subsection (a) and the standard as to scope of operations set forth in Subsection (b) are met and if, moreover, the disclosures required by Subsection (c) are met.

In this connection, you have represented that Realex has a net worth in excess of $5,000,000 as of its most recent financial statement, which we understand is audited as required by Subsection 31101(a) of the Law.

You have further represented that Realex will make the disclosures required by Subsection 31101 (c). As regards "the standard as to scope of operations set forth in Subsection (b) of Section 31101, it is our opinion that, as in Comm. Op. No. 72/28F, the operations of Florida may be credited to Realex as a result of the purchase of all of the issued and outstanding shares of Florida by Realex in 1974, the continued operations of Realex as a division of Realix and the representation of Mr. Kreamer that the previous owners of all the common shares of Florida remained with Realex and continued to operate the business for nearly a year.

In conclusion, it is our opinion that the offer and sale of franchises by Realex, under the circumstances described in the aforementioned letters and the material submitted therewith, is exempt from the registration requirements of Section 31110 of the Law by virtue of Section 31101.

Dated: Sacramento, California
February 5, 1976

By order of
WILLIE R. BARNES
Commissioner of Corporations

By __________________
ROBERT E. LA NOUE
Assistant Commissioner
Office of Policy
(916)322-3633