For the purposes of this title, the following definitions shall apply:
(a) “Seller assisted marketing plan” means any sale or lease or offer to sell or lease any product, equipment, supplies, or services that requires a total initial payment exceeding five hundred dollars ($500), but requires an initial cash payment of less than fifty thousand dollars ($50,000), that will aid a purchaser or will be used by or on behalf of the purchaser in connection with or incidental to beginning, maintaining, or operating a business when the seller assisted marketing plan seller has advertised or in any other manner solicited the purchase or lease of the seller assisted marketing plan and done any of the following acts:
(1) Represented that the purchaser will earn, is likely to earn, or can earn an amount in excess of the initial payment paid by the purchaser for participation in the seller assisted marketing plan.
(2) Represented that there is a market for the product, equipment, supplies, or services, or any product marketed by the user of the product, equipment, supplies, or services sold or leased or offered for sale or lease to the purchaser by the seller, or anything, be it tangible or intangible, made, produced, fabricated, grown, bred, modified, or developed by the purchaser using, in whole or in part, the product, supplies, equipment, or services that were sold or leased or offered for sale or lease to the purchaser by the seller assisted marketing plan seller.
(3) Represented that the seller will buy back or is likely to buy back any product made, produced, fabricated, grown, or bred by the purchaser using, in whole or in part, the product, supplies, equipment, or services that were initially sold or leased or offered for sale or lease to the purchaser by the seller assisted marketing plan seller.
(b) A “seller assisted marketing plan” shall not include:
(1) A security, as defined in the Corporate Securities Law of 1968 (Division 1 (commencing with Section 25000) of Title 4 of the Corporations Code), that has been qualified for sale by the Department of Business Oversight, or is exempt under Chapter 1 (commencing with Section 25100) of Part 2 of Division 1 of Title 4 of the Corporations Code from the necessity to qualify.
(2) A franchise defined by the Franchise Investment Law (Division 5 (commencing with Section 31000) of Title 4 of the Corporations Code) that is registered with the Department of Business Oversight or is exempt under Chapter 1 (commencing with Section 31100) of Part 2 of Division 5 of Title 4 of the Corporations Code from the necessity of registering.
(3) Any transaction in which either the seller or purchaser or the lessor or lessee is licensed pursuant to and the transaction is governed by the Real Estate Law, Division 4 (commencing with Section 10000) of the Business and Professions Code.
(4) A license granted by a general merchandise retailer that allows the licensee to sell goods, equipment, supplies, products, or services to the general public under the retailer’s trademark, trade name, or service mark if all of the following criteria are satisfied:
(A) The general merchandise retailer has been doing business in this state continually for five years prior to the granting of the license.
(B) The general merchandise retailer sells diverse kinds of goods, equipment, supplies, products, or services.
(C) The general merchandise retailer also sells the same goods, equipment, supplies, products, or services directly to the general public.
(D) During the previous 12 months the general merchandise retailer’s direct sales of the same goods, equipment, supplies, products, or services to the public account for at least 50 percent of its yearly sales of these goods, equipment, supplies, products, or services made under the retailer’s trademark, trade name, or service mark.
(5) A newspaper distribution system distributing newspapers as defined in Section 6362 of the Revenue and Taxation Code.
(6) A sale or lease to an existing or beginning business enterprise that also sells or leases equipment, products, supplies, or performs services that are not supplied by the seller and that the purchaser does not utilize with the equipment, products, supplies, or services of the seller, if the equipment, products, supplies, or services not supplied by the seller account for more than 25 percent of the purchaser’s gross sales.
(7) The sale in the entirety of an “ongoing business.” For purposes of this paragraph, an “ongoing business” means a business that for at least six months previous to the sale has been operated from a particular specific location, has been open for business to the general public, and has had all equipment and supplies necessary for operating the business located at that location. The sale shall be of the entire “ongoing business” and not merely a portion of the ongoing business.
(8) A sale or lease or offer to sell or lease to a purchaser (A) who has for a period of at least six months previously bought products, supplies, services, or equipment that were sold under the same trademark or trade name or that were produced by the seller and, (B) who has received on resale of the product, supplies, services, or equipment an amount that is at least equal to the amount of the initial payment.
(9) The renewal or extension of an existing seller assisted marketing plan contract.
(10) A product distributorship that meets each of the following requirements:
(A) The seller sells products to the purchaser for resale by the purchaser, and it is reasonably contemplated that substantially all of the purchaser’s sales of the product will be at wholesale.
(B) The agreement between the parties does not require that the purchaser pay the seller, or any person associated with the seller, a fee or any other payment for the right to enter into the agreement, and does not require the purchaser to buy a minimum or specified quantity of the products, or to buy products for a minimum or specified period of time. For purposes of this paragraph, a “person associated with the seller” means a person, including an individual or a business entity, controlling, controlled by, or under the same control as the seller.
(C) The seller is a corporation, partnership, limited liability company, joint venture, or any other business entity.
(D) The seller has a net worth of at least ten million dollars ($10,000,000) according to audited financial statements of the seller done during the 18 months preceding the date of the initial sale of products to the purchaser. Net worth may be determined on a consolidated basis if the seller is a subsidiary of another business entity that is permitted by generally accepted accounting standards to prepare financial statements on a consolidated basis and that business entity absolutely and irrevocably agrees in writing to guarantee the seller’s obligations to the purchaser. The seller’s net worth shall be verified by a certification to the Attorney General from an independent certified public accountant that the audited financial statement reflects a net worth of at least ten million dollars ($10,000,000). This certification shall be provided within 30 days following receipt of a written request from the Attorney General.
(E) The seller grants the purchaser a license to use a trademark that is registered under federal law.
(F) It is not an agreement or arrangement encouraging a distributor to recruit others to participate in the program and compensating the distributor for recruiting others into the program or for sales made by others recruited into the program.
(c) “Person” includes an individual, corporation, partnership, limited liability company, joint venture, or any business entity.
(d) “Seller” means a person who sells or leases or offers to sell or lease a seller assisted marketing plan and who meets either of the following conditions:
(1) Has sold or leased or represents or implies that the seller has sold or leased, whether in California or elsewhere, at least five seller assisted marketing plans within 24 months prior to a solicitation.
(2) Intends or represents or implies that the seller intends to sell or lease, whether in California or elsewhere, at least five seller assisted marketing plans within 12 months following a solicitation.
For purposes of this title, the seller is the person to whom the purchaser becomes contractually obligated. A “seller” does not include a licensed real estate broker or salesman who engages in the sale or lease of a “business opportunity” as that term is used in Sections 10000 to 10030, inclusive, of the Business and Professions Code, or elsewhere in Chapter 1 (commencing with Section 10000), Chapter 2 (commencing with Section 10050), or Chapter 6 (commencing with Section 10450) of Part 1 of Division 4 of the Business and Professions Code.
(e) “Purchaser” means a person who is solicited to become obligated or does become obligated on a seller assisted marketing plan contract.
(f) “Equipment” includes machines, all electrical devices, video or audio devices, molds, display racks, vending machines, coin operated game machines, machines that dispense products, and display units of all kinds.
(g) “Supplies” includes any and all materials used to produce, grow, breed, fabricate, modify, develop, or make any product or item.
(h) “Product” includes any tangible chattel, including food or living animals, that the purchaser intends to:
(1) Sell or lease.
(2) Use to perform a service.
(3) Resell or attempt to resell to the seller assisted marketing plan seller.
(4) Provide or attempt to provide to the seller assisted marketing plan seller or to any other person whom the seller suggests the purchaser contact so that the seller assisted marketing plan seller or that other person may assist, either directly or indirectly, the purchaser in distributing, selling, leasing, or otherwise disposing of the product.
(i) “Services” includes any assistance, guidance, direction, work, labor, or services provided by the seller to initiate or maintain or assist in the initiation or maintenance of a business.
(j) “Seller assisted marketing plan contract” or “contract” means any contract or agreement that obligates a purchaser to a seller.
(k) “Initial payment” means the total amount a purchaser is obligated to pay to the seller under the terms of the seller assisted marketing plan contract prior to or at the time of delivery of the equipment, supplies, products, or services or within six months of the purchaser commencing operation of the seller assisted marketing plan. If the contract sets forth a specific total sale price for purchase of the seller assisted marketing plan which total price is to be paid partially as a downpayment and then in specific monthly payments, the “initial payment” means the entire total sale price.
(l) “Initial cash payment” or “downpayment” means that portion of the initial payment that the purchaser is obligated to pay to the seller prior to or at the time of delivery of equipment, supplies, products, or services. It does not include any amount financed by or for which financing is to be obtained by the seller, or financing that the seller assists in obtaining.
(m) “Buy-back” or “secured investment” means any representation that implies in any manner that the purchaser’s initial payment is protected from loss. These terms include a representation or implication of any of the following:
(1) That the seller may repurchase either all or part of what it sold to the purchaser.
(2) That the seller may at some future time pay the purchaser the difference between what has been earned and the initial payment.
(3) That the seller may in the ordinary course buy from the purchaser items made, produced, fabricated, grown, bred, modified, or developed by the purchaser using, in whole or in part, the product, supplies, equipment, or services that were initially sold or leased to the purchaser by the seller.
(4) That the seller or a person to whom the seller will refer the purchaser may in the ordinary course sell, lease, or distribute the items the purchaser has for sale or lease.
(Amended by Stats. 2015, Ch. 190, Sec. 5. (AB 1517) Effective January 1, 2016.)