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Army Veteran Owned | Expert Surety Bonds Since 2004
Have a question? +1 815-826-6324 (815-8-BondAI) phil@AmericasSuretyBonds.com
Army Veteran Owned | Expert Surety Bonds Since 2004
Most California franchisors never post this bond. It comes up only when the Department of Financial Protection and Innovation decides an applicant has not shown adequate financial arrangements to deliver what the offering promises, and even then the default is an impound of 100 percent of franchisee fees. The bond is the escape from that impound. Instead of parking every dollar of initial fees in a trust account until each franchise opens, you post a bond and keep using your own money.
California does not require a franchise bond from every franchisor. Corporations Code section 31113 lets the Commissioner require an escrow or impound of franchisee fees when an applicant has failed to demonstrate that adequate financial arrangements have been made to fulfill the franchisor's obligations, and it gives the franchisor the option to furnish a surety bond instead. Rule 310.113.5 of title 10 of the California Code of Regulations governs that bond. There is no fixed amount. The Commissioner sets it, and it has to cover the aggregate liability on franchises sold in California that have not yet opened.
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Read section 31113 carefully. If the commissioner finds that it is necessary and appropriate for the protection of prospective franchisees or subfranchisors because the applicant has failed to demonstrate that adequate financial arrangements have been made to fulfill the franchisor's obligations to provide real estate, improvements, equipment, inventory, training, or other items included in the offering, the commissioner may by rule or order require the escrow or impound of franchisee fees. At the option of the franchisor, the franchisor may furnish a surety bond as provided by rule of the commissioner.
Three things follow from that sentence. The trigger is a finding about your financial condition, not a blanket rule. The default remedy is an impound. The bond is your alternative, elected by you, not imposed on you.
Rule 310.113.1 requires one hundred percent of franchisee fees and all other funds paid by franchisees or subfranchisors to be deposited with the designated depositary within 48 hours of receipt, with checks made payable to the depositary rather than to you. Rule 310.113.3 requires that money to sit in a separate trust account with an approved depositary, which has to be a national bank operating in California or a California bank or trust company, and the depositary has to file written consent with the Commissioner to act in that capacity. The funds stay there until the Commissioner instructs otherwise under Rule 310.113.4, which turns on signed franchisee statements confirming the franchisor's obligations were met.
That is the cash flow problem the bond solves. Every dollar of initial fee is frozen until the outlet opens and the franchisee signs off.
Rule 310.113.5 permits a surety bond in lieu of impound, issued by a corporate surety admitted to transact business in the State of California. The amount is determined by the Commissioner on the facts of the offering. The rule adds one sizing instruction worth knowing in advance. Where more than one franchise may be sold at the same time and remain unopened, the bond has to cover the aggregate liability across all of those unopened California franchises. So the number tracks how many franchises you expect to sell before they open, multiplied by what you owe each one.
Anyone quoting you a single flat California franchise bond figure is guessing. Get the amount from the Department in writing first.
The same obligations section 31113 names. Real estate, improvements, equipment, inventory, training and the other items included in the offering. It is a delivery guarantee to franchisees who have paid, not a general compliance bond for the Franchise Investment Law as a whole.
Section 31101 exempts the offer and sale of a franchise from the registration and disclosure chapter entirely if the franchisor meets four tests. Net worth, on a consolidated basis according to audited financial statements for the fiscal year just ended, of not less than $5,000,000, or a franchisor net worth of not less than $1,000,000 with a parent owning at least 80 percent that has $5,000,000. Experience, meaning that throughout the five year period immediately preceding the offer and sale, the franchisor or that parent has had at least 25 franchisees conducting the business that is the subject of the franchise, or has conducted that business itself, in any combination across the period. Disclosure in writing to each prospective franchisee at least 14 days before the franchisee signs a binding agreement or pays any consideration. And a notice filing with the Commissioner, with the fee under section 31500(f), before any offer or sale in California in a calendar year in which one or more franchises are sold.
A franchisor inside section 31101 is not registering, so there is no application for the Commissioner to condition, and the bond question never arises. A franchisor may rely on the immediately preceding fiscal year's audited financial statement for 15 months from that fiscal year end date.
Registration renews for additional periods of one year each unless the Commissioner specifies a different period. Under section 31121, if no stop order is in effect, registration automatically becomes renewed at 12 p.m. California time on the 30th business day after the filing of a complete application or the last pre-effective amendment, or earlier if the Commissioner allows. The Department's own instructions set the registration filing fee at $1,865 and the renewal fee at $1,245, with $50 for a post-effective amendment and no fee for pre-effective amendments, advertising, negotiated sales filings or a release of impound. A complete renewal application not received by 5:00 p.m. Pacific Standard Time on the day the registration expires is treated as a new registration for fee purposes, at the higher figure.
The Department's application instructions list financial assurance among the required documents, and the accepted forms include a copy of the facing page of a surety bond showing the amount and effective period, a signed escrow or impound agreement with a California bank under Rule 310.113.3, and a signed guarantee of performance by a guarantor. Audited financial statements and the auditor's consent are separate line items and are what the Department reads first when deciding whether financial assurance is needed at all.
The Franchise Investment Law was updated in 2026 to add franchise broker registration under SB 919. The Department states that broker registration is not currently available, and that once funding is provided, franchise brokers will be required to register with the DFPI one year after funding is received. That is a separate registration from franchisor registration and it is worth tracking if you use third party brokers to sell franchises in California.
No, and the old version of this page was wrong to say so. Corporations Code 31113 lets the Commissioner require an escrow or impound only when an applicant has failed to demonstrate adequate financial arrangements to fulfill the obligations in its offering. The surety bond is an option the franchisor may elect instead of that impound. A franchisor with financials the Department accepts posts nothing.
There is no published figure. Rule 310.113.5 leaves the amount to the Commissioner, and requires it to cover the aggregate liability where more than one franchise may be sold at the same time and remain unopened. Ask the Department for the number before you shop for a bond.
The impound applies instead. Rule 310.113.1 requires 100 percent of franchisee fees and all other funds paid by franchisees or subfranchisors to go to the depositary within 48 hours of receipt, with checks payable to the depositary. Rule 310.113.3 requires a separate trust account at an approved California bank or trust company, and the funds are released only on the Commissioner's instructions under Rule 310.113.4.
Section 31101 exempts the offer and sale of a franchise from the disclosure chapter for a franchisor meeting four tests: a consolidated net worth of at least $5,000,000, or $1,000,000 with an 80 percent parent at $5,000,000, plus five years of experience measured by at least 25 franchisees or conducting the business itself, plus written disclosure to each prospect at least 14 days before signing or payment, plus a notice of exemption filed with the Commissioner and the fee paid before any offer or sale in a calendar year in which franchises are sold.
The franchisor's obligations to provide real estate, improvements, equipment, inventory, training and the other items included in the offering. It answers to franchisees who paid for something the franchisor did not deliver. It is not a general compliance bond for the Franchise Investment Law.
Registration renews for one year periods unless the Commissioner specifies otherwise. The Department treats a complete renewal application not received by 5:00 p.m. Pacific Standard Time on the expiration day as a new registration for fee purposes, which moves the fee from $1,245 to $1,865.
California does not set a rate. Because the penal sum is set case by case, the surety prices from the amount the Commissioner requires together with the franchisor's audited financials and operating history. Get the required amount first, then ask for the quote.
Not yet. The Department states that registration under SB 919 is not currently available, and that once funding is provided, franchise brokers will be required to register one year after funding is received.
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