14300. (a) Any corporation organized for or engaged in the business of selling, distributing, supplying, or delivering water for irrigation purposes may provide, and any corporation organized for or engaged in the business of selling, distributing, supplying, or delivering water for
domestic use shall provide, in its articles or bylaws that water shall be sold, distributed, supplied, or delivered only to owners of its shares and that the shares shall be appurtenant to certain lands when the same are described in the certificate issued therefor; and when the certificate is so issued and a certified copy of the articles or bylaws recorded in the office of the county recorder in the county where the lands are situated the shares of stock shall become appurtenant to the lands and shall only be transferred therewith, except after sale or forfeiture for delinquent assessments thereon as provided in Section 14303. Notwithstanding this provision in its articles or bylaws, any such corporation may sell water to the state, or any department or agency thereof, or to any school district, or to any public agency, or, to any other mutual water company or, during any emergency resulting from fire or other disaster involving danger to public health or safety, to any person at the same rates as to holders of shares of the corporations; and provided further, that any corporation may enter into a contract with a county fire protection district to furnish water to fire hydrants and for fire suppression or fire prevention purposes at a flat rate per hydrant or other connection. In the event lands to which any stock is appurtenant are owned or purchased by the state, or any department or agency thereof, or any school district, or public agency, the stock shall be canceled by the secretary, but shall be reissued to any person later acquiring title to the land from the state department, agency, or school district, or public agency.

(b) A corporation described in subdivision (a) shall be known as a mutual water company.

Public Water System - Definition
14300.5. For purposes of this chapter, "public water system" shall have the same meaning as provided in Section 116275 of the Health and Safety Code.

14301. A corporation, including a nonprofit corporation organized for or engaged in the business of developing, distributing, supplying, or delivering water for irrigation or domestic use, or both, may provide in its articles, or may amend its articles to provide, that its only purpose shall be to develop, distribute, supply, or deliver water for irrigation or domestic use, or both, to its members or shareholders, at actual cost plus necessary expenses.
The amendment of the articles may be accomplished by:

(a) The passage by a three-fourths vote of the members of the board of directors of the corporation of a resolution adopting as the purpose of the corporation the purpose set forth in this section.

(b) The signing, verification, and filing of a certificate setting forth the resolution and the manner of its adoption.

The corporation shall not distribute any gains, profits, or dividends to its members or shareholders except upon the dissolution of the corporation.

Mutual Water Company Operating Public Water System
14301.1. (a) No later than December 31, 2012, each mutual water company that operates a public water system shall submit to the local agency formation commission for its county a map depicting the approximate boundaries of the property that the mutual water company serves.
(b) A mutual water company that operates a public water system shall respond to a request from a local agency formation commission, located within a county that the mutual water company operates in, for information in connection with the preparation of municipal service reviews or spheres of influence pursuant to Chapter 4 (commencing with Section 56425) of Part 2 of Division 3 of Title 5 of the Government Code within 45 days of the request. The mutual water company shall provide all reasonably available nonconfidential information relating to the operation of the public water system. The mutual water company shall explain, in writing, why any requested information is not reasonably available. The mutual water company shall not be required to disclose any information pertaining to the names, addresses, or water usage of any specific shareholder. This subdivision shall not be interpreted to require a mutual water company to undertake any study or investigation. A mutual water company may comply with this section by submitting to the local agency formation commission the same information that the mutual water company submitted to the State Department of Public Health.

(c) A mutual water company that operates a public water system shall be subject to the requirements of, and has the powers granted by, subdivision (b) of Section 116755 of the Health and Safety Code.

Board Member - Training Requirements
14301.2. Each board member of a mutual water company that operates a public water system shall comply with the training requirements set out in subdivision (a) of Section 116755 of the Health and Safety Code.

Public Water System - Design and Construction
14301.3. (a) All construction on public water systems operated by a mutual water company shall be designed and constructed to comply with the applicable California Waterworks standards, as provided in Chapter 16 (commencing with Section 64551) of Division 4 of Title 22 of the California Code of Regulations.
(b) A mutual water company that operates a public water system shall maintain a financial reserve fund for repairs and replacements to its water production, transmission, and distribution facilities at a level sufficient for continuous operation of facilities in compliance with the federal Safe Drinking Water Act (42 U.S.C. Sec. 300f et seq.) and the California Safe Drinking Water Act (Chapter 4 (commencing with Section 116270) of Part 12 of Division 104 of the Health and Safety Code).

14302. Whenever the owner of real property to which water stock by the terms of the certificate thereof is appurtenant at the time of conveyance, by properly executed conveyance, transfers to another the real property with the appurtenances belonging to the property, or whenever title to the property passes by execution sale, or by foreclosure or probate proceedings, the secretary of the water company that issued the stock shall, upon exhibition to him or her of a deed of the land duly recorded, or the necessary court order duly recorded, issue to the grantee named in the conveyance a new certificate of stock for the number of shares appurtenant to the land as shown by the books and records of the company. The secretary of the water company shall enter the name of the grantee upon the books of the company as the owner of the shares of stock and shall cancel on the books the number of former shares of stock so appurtenant to the land in the name of the grantor or of any previous owner of the land, or of any other person.

14303. A corporation organized for or engaged in the business of selling, distributing, supplying, or delivering water for irrigation purposes or domestic use, and not as a public utility, may levy assessments upon its shares, whether or not fully paid, unless otherwise provided in its articles or bylaws. If any shares of the corporation that have been made appurtenant to any land as provided in this chapter, become delinquent in the payment of assessments, the right to receive water or dividends thereon may be denied, and they may be sold and transferred without those lands as if not appurtenant thereto, and the purchaser shall acquire the right to receive water as provided in the articles or bylaws of the corporation, or they may be forfeited to the corporation.
CHAPTER 2. MUTUAL WATER COMPANIES FORMED IN CONNECTION WITH SUBDIVIDED LANDS

14310. (a) It is the intent of the Legislature to ensure both of the following:
(1) That when a mutual water company is formed or is about to be formed in connection with a subdivision, as defined in Sections 11000 and 11004.5 of the Business and Professions Code, an adequate potable water supply and distribution system exists for domestic use and fire protection.

(2) That adequate disclosure and protection to the security holders exist with respect to rights and duties arising from their security holdings in a mutual water company.

(b) For purposes of this chapter, the use of the term “subdivision” has the same definition as “subdivision” as defined in Sections 11000 and 11004.5 of the Business and Professions Code.

14311. A mutual water company formed on or after January 1, 1998, in connection with the offering for sale or lease, or with the sale or lease, of lots within a subdivision and organized to sell, distribute, supply, or deliver water for domestic use to owners of lots in the subdivision shall meet all the requirements of this chapter. A mutual water company described in this section and formed before January 1, 1998, may elect to meet all the requirements of this chapter.

14312. (a) Any person who intends to offer for sale or lease lots within a subdivision within this state and to provide water for domestic use to purchasers of the lots within a subdivision through the formation of a mutual water corporation described in Section 14311, shall include as part of the application for a public report, as described in Section 11010 of the Business and Professions Code, a separate document containing all of the following information, representations, and assurances:
(1) That the provisions of this chapter have been complied with.

(2) That the area in which the mutual water company proposes to deliver water encompasses and includes the entire subdivision and, when applicable, will include parcels to be annexed to the subdivision.

(3) That the mutual water company has contacted the Public Utilities Commission and the county local agency formation commission to determine if the proposed area described in paragraph (2) will overlap an existing water service area or if an existing water service area could more appropriately serve the subdivision.

(4) That the mutual water company has a source of, and title to, a water supply, distribution, and fire protection system sufficient to satisfy expected demands for water from the subdivision.

(5) That copies of the contracts and other documents relating to the acquisition by the mutual water company of the water supply, distribution, and fire protection system have been delivered to, and are on file with, the mutual water company and that these contracts and documents evidence the mutual water company’s title to the water supply, distribution, and fire protection system.

(6) That the subdivider or applicant has executed and entered into a written contract with the mutual water company wherein the subdivider or applicant has agreed to pay monthly a proportional part of the repair and replacement fund according to a ratio of the number of lots owned or controlled by the subdivider or applicant to the total number of lots in the subdivision.

(7) That an engineer’s report has been prepared in accordance with this chapter and Sections 260.504.2 to 260.504.2.4, inclusive, of Title 10 of the California Code of Regulations and is on file with the mutual water company.

(8) That the mutual water company will distribute potable water for domestic use and has obtained, and has on file, a copy of the permit issued by the State Water Resources Control Board, as required pursuant to Section 116540 of the Health and Safety Code, or by a local primacy agency that has been delegated the authority to issue permits to small water systems, with the concurrence of the State Water Resources Control Board.

(9) That the securities of the mutual benefit water corporation will be sold or issued only to purchasers of lots in the subdivision, or to successors in interest of purchasers of lots in the subdivision, and not sold or issued to the subdivider, applicant, or to the successor in interest of the subdivider or applicant, and that the securities will be sold or issued only after a public report for the subdivision has been issued by the Real Estate Commissioner.

(10) That the securities to be issued by the mutual water company are appurtenant to the land pursuant to Section 14300.

(11) That the water supply and distribution system will serve each lot in the subdivision and be completed prior to the issuance of the public report by the Real Estate Commissioner.

(12) That there is a statement, signed by either the engineer who prepared the engineer’s report referred to in paragraph (7) or a person employed or acting on behalf of a public agency or other independent qualified person, that the water supply and distribution system has been examined and tested and that the water supply and distribution system operates in accordance with the design standards of the water supply and distribution system required by this chapter, and that a copy of this statement is on file with the mutual water company.

(13) That the articles of incorporation or bylaws of the mutual water company contain all of the following:

(A) A statement to the effect that the mutual water company shall provide water to all members or shareholders. If there will be an owners’ association of the subdivision, an additional statement that water shall also be provided to the common areas.

(B) A provision directing the board of directors to establish a rate structure that will result in the accumulation and maintenance of a fund for the repair, administration, maintenance, and replacement of the water supply, distribution, and fire protection system, that the rate charged shall bear a reasonable relationship to the cost of furnishing water and maintaining the system, and that unimproved lots included within the area to be served shall bear a proportionate share of the cost of repair and replacement of the water supply, distribution, and fire protection system, as well as a proportionate share of the cost of maintaining the fund.

(C) A statement evidencing a reasonable relationship between each unit of the securities to be issued and each unit of the area to be served, such as one share of common stock issued for each subdivision lot purchased.

(D) A prohibition on the issuance of fractional shares or securities.

(E) A statement, meeting the requirements of Section 14300, that the securities are appurtenant to the land within the area to be served.

(F) Provision for the transfer of the securities, voting rights of the security holders, inspection of books and records by security holders, necessary or contemplated expansion of the facilities of the mutual water company, and further subdivision, where applicable, of the area to be served.

(G) The limitation on the salaries paid to the persons operating, or employed by, the mutual water company, including officers and directors.

(H) A provision for annual meetings of the security holders accompanied by a provision for adequate notice.

(I) A provision for the annual distribution to each security holder of fiscal yearend financial statements within 105 days of the close of the fiscal year.

(J) In the case of a mutual water company that purchases water for distribution from a public utility, municipal water company, or water district, a provision for charging all security holders a pro rata amount of the cost of water

supplied to an entity providing fire protection service.

(K) A provision that a share certificate shall be issued to each lot purchased.

(L) In the case of a mutual water company serving a residential subdivision, the following statements: (i) the mutual water company shall be a separate corporation formed and organized for the purpose described in Section 14311; and (ii) if a shareholder becomes delinquent in paying assessments, the right to receive water or dividends may be denied or forfeited but those rights shall not be sold or transferred without the land.

(14) That an offering circular has been prepared and will be used in any offer and sale of the securities of the mutual water company.

(15) That the writings and documents evidencing compliance with all of the above provisions of the subdivision are on file as part of the permanent record of the mutual water company.

(b) The contracts and documents described in paragraph (5) of subdivision (a) shall include all of the following:

(1) Any bill of sale transferring all personal property used and usable in the operation of the mutual water company.

(2) A copy of any recorded deed to the wells and water tanks to be used by the mutual water company in the supply, distribution, and fire protection system.

(3) Copies of any recorded deeds granting easements for construction, repair, maintenance, and improvements of the water supply, distribution, and fire protection system.

(c) The written contract described in paragraph (6) of subdivision (a) shall provide that, in consideration of the transfer by the subdivider or applicant to the mutual water company of the water supply, distribution, and fire protection system, the mutual water company agrees to do all of the following:

(1) Sell and issue securities to the purchasers of the remaining lots in the subdivision on the same terms, except for the price if the difference is justified, as for the initial purchasers.

(2) Cooperate with the subdivider or applicant in the operation, maintenance, and improvement of the present and contemplated water supply, distribution, and fire protection system.

(3) Contract with the subdivider, applicant, or a successor in interest, if a reasonable request is made to do so, for the management of the mutual water

company for as long as lots in the subdivision remain unsold. The terms of the contract shall be subject to approval by the board of directors of the mutual water company, including terms related to the compensation to the subdivider, applicant, or successor in interest, if any.

(d) The offering circular described in paragraph (14) of subdivision (a) shall be delivered to each prospective purchaser of the securities and shall include, among other things, all of the following:

(1) A discussion of the water supply, distribution, and fire protection system.

(2) A summary of the opinion of the engineer along with the engineer’s consent, as required by Sections 260.504.2 to 260.504.2.4, inclusive, of Title 10 of the California Code of Regulations.

(3) The area in which the mutual water company intends to provide water service.

(4) A discussion of the rights and duties of the security holders of the mutual water company as set forth in its articles of incorporation and bylaws, including the consequence of failure to pay for water or assessments.

(5) The fact that the articles of incorporation or bylaws provide that the shares or securities of the mutual water company may not be sold separately from the right to water evidenced by the security of the mutual water company and prohibit issuance of fractional shares or securities of the mutual water company.

(6) A discussion of the certificate issued by the State Water Resources Control Board certifying that the water is fit for domestic use.

(7) The limitation imposed on salaries to be paid to personnel operating, or employed by, the mutual water company, including officers and directors.

(8) A discussion of the transferability of the securities, the voting rights of the security holders, access to books and records, necessary or contemplated expansion of the facilities of the mutual water company, and further subdivision of the area to be served, if applicable.

(9) A discussion of the subdivider’s duties with respect to maintenance and repair or replacement of the water supply, distribution, or fire protection system; and a discussion of the establishment and maintenance of the operating, repair, and replacement fund.

(e) The following exhibits shall also be attached to the offering circular:

(1) A copy of the articles of incorporation and bylaws of the mutual water company, including the articles of incorporation or bylaws recorded under Section 14300.

(2) A copy of financial statements of the mutual water company. If the mutual water company has not yet commenced operations, a detailed operating budget for the first six months of operations should be included as an exhibit to the offering circular. The operating budget must include estimated monthly fees to be charged to the water users.

(3) A specimen certificate evidencing the security to be issued and meeting the requirements of Section 14300.

(f) The Real Estate Commissioner shall prescribe the form and content of the document required by this section.

14313. The engineer’s report prepared pursuant to the document under Section 14312 shall contain all relevant information pertaining to the proposed water supply, distribution, and fire protection system, including, but not limited to, the following:
(a) A system map of the area to be served showing all of the following:

(1) The total acreage.

(2) The number and location of lots into which the area is or can be subdivided and the location of the connection for water service.

(3) The location of all sources of supply, principal pumping stations, diversion works, water treatment and filter plants, and storage facilities.

(4) The size, character, and location of all mains and ditches.

(5) The location of all valves and gates, gauges, interconnections with other systems, and fire hydrants.

(6) The location, size, and kind of each service pipe.

(7) The layout of all principal pumping stations and water treatment and filter plants to show size, location, and character of all major equipment, pipelines, connections, valves, and other equipment used in connection therewith.

(8) The date of construction and condition of all principal items of plant and extensions of all mains.

(b) A description of the sources of supply, including, in the case of wells, information on the depth, diameter, and casing of the well, and a statement indicating that the proposed water supply and distribution system complies with this section, supported by reports showing the sustained capacity of source of supply, or, if all or some

water is to be obtained from another source, copies of contracts for obtaining such water, together with estimates of the present and ultimate water consumption in the area to be served.

(c) A statement indicating in detail the cost of the water supply, distribution, and fire protection system, and indicating the cost of any required repairs or replacement.

(d) An opinion by the engineer to the effect that the water supply, distribution, and fire protection system will adequately, dependably, and safely meet the total requirements for all water consumers under maximum consumption and will meet the requirements of Section 14314. The opinion shall have attached to it the calculations and data used in estimating the water requirements.

(e) A statement by the engineer of the estimated cost of maintenance of the system, the estimated useful life of the components of the system, the estimated cost of replacement of the system, and the monthly or annual amount which should be charged to establish a reasonable reserve for maintenance and replacement of the system based on these estimates.

14314. The water supply and distribution system of a mutual water company described in Section 14311 that proposes to distribute water for domestic use pursuant to this chapter shall comply with all of the following design standards:
(a) The system shall be adequate to maintain normal operating pressure of not less than 25 pounds per square inch, nor more than 125 pounds per square inch, at the service connection; provided, however, that during periods of hourly maximum demand, or at the time of peak seasonal loads, the pressure may be reduced to not less than 20 pounds per square inch, and during periods of hourly minimum demand the pressure may increase to not more than 150 pounds per square inch. Variations in pressure under normal operation shall not exceed 50 percent of the average operating pressure. The average operating pressure shall be determined by computing the arithmetical average of at least 24 consecutive hourly pressure readings.

(b) The quantity of water delivered to the distribution system from all source facilities shall be sufficient to supply adequately, dependably, and safely the total requirements of all water consumers under maximum consumption, and shall be sufficient to maintain the pressure specified by subdivision (a).

(c) The distribution system shall provide at least one connection per service and, to the extent feasible, shall be designed in a property segmented grid so as to do both of the following:

(1) Minimize the extent of interruption in water service when repairs are necessary.

(2) Avoid dead ends in its water mains.

14315. (a) The mutual water company described in Section 14311 shall provide at least a minimum level of water service to its customers for fire protection purposes as an inherent part of the water system design in accordance with the standards set forth in this section. The standards set forth in this section are the minimum levels of water service that the mutual water company shall provide and shall not preclude the mutual water company from designing a fire protection system that meets higher standards, nor preclude any governmental agency from setting higher standards in any area subject to its jurisdiction. A mutual water company may request a fire protection agency to approve a fire protection system that does not meet the standards set forth in this chapter upon a showing by the mutual water company that the proposed system is adequate for fire protection purposes.
(b) In the initial construction, extension, or modification of a water system, any one of which is required to serve (1) a new user or (2) a change in use, the facilities constructed, extended, or modified shall be designed to be capable of providing, for a sustained period of at least two hours, in addition to the requirements of the average daily demand within the area to be served, the minimum flow requirements set forth below opposite the classification of land use to be served:

Land Use - Minimum Flow
1. Rural, residential with a lot density of two or fewer units per acre primarily for recreational and retirement use.........250 gpm
2. Lot density of less than one single-family residential unit per acre................500 gpm
3. Lot density of one or two single-family residential units per acre...............750 gpm
4. Lot density of three or more single-family residential units per acre.............1,000 gpm
5. Duplex residential units, neighborhood business of one story..................1,500 gpm
6. Multiple residential, one and two stories; light commercial
or light industrial....................2,000 gpm

7. Multiple residential, three stories or higher; heavy commercial or heavy industrial............................ 2,500 gpm

14316. The water supply and distribution system of a mutual water company described in Section 14311 that proposes to distribute water for domestic use shall be
constructed to conform with currently accepted engineering practices, and shall comply with the following construction standards where possible:

(a) Water mains to be installed below the frost level or otherwise protected to prevent freezing and shall not have less than 30 inches of cover over the top of the pipe in public streets or alleys except where such depth is rendered impossible by underground obstructions or rocky or hardpan conditions.

(b) The size, design, material, and installation of service pipes shall conform to the reasonable requirements of the mutual water company; provided, however, that the minimum size of the pipe shall be 3/4 inch or greater nominal size. Except where services are not intended for use during freezing weather and arrangements are made to drain service pipes prior to freezing weather, and except at terminations in connection with the meter or water consumer’s piping, all service pipes shall be laid at a depth sufficient to prevent freezing.

14317. The fire protection system of a mutual water company shall be constructed to conform with currently accepted engineering practices, and shall comply with the following construction standards:
(a) The flows set forth in Section 14315 shall be calculated on the basis of a residual pressure of 20 p.s.i.g. in the distribution system under flowing conditions.

(b) Fire hydrants shall be attached to the distribution systems at the locations designated by the entity responsible for their use for firefighting purposes. Any new mains to which a hydrant may be attached shall not be less than six inches in diameter.

(c) Each separately operated water system shall not have less than two independent sources of supply.

14318. The mutual water company shall be financially responsible for the maintenance, repair, or replacement of fire hydrants. A mutual water company shall perform and record annual flow tests pursuant to Section 14317 or, in lieu of the annual flow test under Section 14317, any test to determine available flow performed by a fire protection agency. The recorded test results shall become part of the mutual water company’s books and records.

Exempt Sales
25102.5. There shall be exempted from Section 25110 a transaction that is the sale of a series of notes secured directly by an interest in the same real property, or the sale of undivided interests in a note secured directly by real property equivalent to a series transaction, that complies with all of the provisions of Article 6 (commencing with Section 10237) of Chapter 3 of Part 1 of Division 4 of the Business and Professions Code. For purposes of this section, a real estate broker licensed by the Real Estate
Commissioner of this state who engages in the offer and sale of notes secured directly by real property of various makers, which are a series of notes or notes in which undivided interests are offered and sold, shall be deemed to be the issuer of these notes and undivided interests if the notes of the various makers are offered and sold pursuant to a plan or arrangement that is common to the various makers with respect to documentation and loan standards and that include provisions for servicing these notes on behalf of purchasers.

Real Estate Syndicates - Broker Exemption
25206. A broker licensed by the Real Estate Commissioner is exempt from the provisions of Section 25210 when engaged in transactions in any interest in any general or limited partnership, joint venture, unincorporated association, or similar organization (but not a corporation) owned beneficially by no more than 100 persons and formed for the sole purpose of, and engaged solely in, investment in or gain from an interest in real property, including, but not limited to, a sale, exchange, trade, or development. An interest held by spouses shall be considered held by one person for the purposes of this section.

Real Estate Syndicates - Transfer of Jurisdiction
25706. (a) All effective permits, orders, and consents under the Real Estate Syndicate Act, all administrative orders relating to the Real Estate Syndicate Act, and all conditions imposed upon the Real Estate Syndicate Act remain in effect so long as they would have remained in effect if such act had not been repealed, but shall be considered to have been filed, entered, or imposed under this law. An application to amend, extend, modify, revoke, or set aside any such permits, orders, or consents shall be filed under and be subject to the provisions of this division.
(b) Any application pending under the Real Estate Syndicate Act, upon the effective date of this section, shall be processed by the Real Estate Commissioner pursuant to the provisions of the Real Estate Syndicate Act in effect on December 31, 1977, until such application is granted or denied by such commissioner.

(c) Except as expressly provided by this section, the Real Estate Syndicate Act continues to govern all suits, actions, prosecutions, or proceedings which are pending prior to, or which may be initiated thereunder on the basis of facts or circumstances occurring prior to, the effective date of this section.

(d) No civil suit or action may be maintained to enforce any liability under the Real Estate Syndicate Act, unless brought within any period of limitation which applied the time the cause of action accrued.

(e) Judicial review of all administrative orders under the Real Estate Syndicate Act as to which review proceedings have not been commenced prior to the effective date of this section shall be governed by Section 25609, except that no review proceeding may be commenced unless the petition is filed within the applicable period of limitation which applied to a review proceeding when the order was issued and except that judicial review of administrative orders of the Real Estate Commissioner made pursuant to subdivision (b) shall be governed by the provisions of law applicable to such proceedings on December 31, 1977.

Real Property Securities - Transfer of Jurisdiction 25707. (a) All permits and orders issued under Article 6 (commencing with Section 10237) of Chapter 3 of Part 1 of Division 4 of the Business and Professions Code, and all conditions imposed pursuant to those provisions, shall remain in effect for the period of time that they would have remained in effect if those provisions had not been repealed by the act enacting this section. Following the repeal of those provisions, the permits, orders, and conditions shall be deemed to have been issued or imposed under this division. An application to amend, extend, modify, revoke, or set aside a permit or order shall be filed under this division and is subject to this division.

(b) An application pending under Article 6 (commencing with Section 10237) of Chapter 3 of Part 1 of Division 4 of the Business and Professions Code, on the effective date of this section, shall be processed by the Real Estate Commissioner subject to those provisions as they were in effect on December 31, 1996, until each application that was pending on the effective date of this section is granted or denied by the Real Estate Commissioner.

(c) Except as expressly provided by this section, all actions, prosecutions, or proceedings under Article 6 (commencing with Section 10237) of Chapter 3 of Part 1 of Division 4 of the Business and Professions Code that are pending prior to the effective date of this section, or that otherwise could be initiated based on facts or circumstances occurring prior to the effective date of this section, shall be governed by those provisions.

(d) No civil action may be brought to enforce any liability under Article 6 (commencing with Section 10237) of Chapter 3 of Part 1 of Division 4 of the Business and Professions Code, unless it is brought within the period of limitations that applied to the action at the time the action accrued.

(e) Judicial review of orders under Article 6 (commencing with Section 10237) of Chapter 3 of Part 1 of Division 4 of the Business and Professions Code that had not commenced prior to the effective date of this section shall be governed by Section 25609, except that no review proceeding shall be commenced unless the petition is filed within the applicable period of limitations that applied to

a review proceeding when the order was issued. Judicial review of an order of the Real Estate Commissioner made pursuant to subdivision (b) shall be governed by the provisions of law applicable to those proceedings on December 31, 1996.

Franchise Defined
31005. (a) “Franchise” means a contract or agreement, either expressed or implied, whether oral or written, between two or more persons by which:
(1) A franchisee is granted the right to engage in the business of offering, selling or distributing goods or services under a marketing plan or system prescribed in substantial part by a franchisor; and

(2) The operation of the franchisee’s business pursuant to such plan or system is substantially associated with the franchisor’s trademark, service mark, trade name, logotype, advertising or other commercial symbol designating the franchisor or its affiliate; and

(3) The franchisee is required to pay, directly or indirectly, a franchise fee.

(b) For the purposes of this division, the term “franchise” also means the following:

(1) Any contractual agreement between a petroleum corporation or distributor and a gasoline dealer, or between a petroleum corporation and distributor, under which the petroleum distributor or the gasoline dealer is granted the right to use a trademark, trade name, service mark, or other identifying symbol or name owned by the other party to the agreement, or any agreement between a petroleum corporation or distributor and a gasoline dealer, or between a petroleum corporation and distributor, under which the petroleum distributor or the gasoline dealer is granted the right to occupy premises owned, leased, or controlled by the other party to the agreement, for the purposes of engaging in the retail sale of petroleum and other products of the other party to the agreement.

(2) Any contract between a refiner and a petroleum distributor, between a refiner and a petroleum retailer, between a petroleum distributor and another petroleum distributor, or between a petroleum distributor and a petroleum retailer, under which a refiner or petroleum distributor authorizes or permits a petroleum retailer or petroleum distributor to use, in connection with the sale, consignment, or distribution of gasoline, diesel, gasohol, or aviation fuel, a trademark which is owned or controlled by such refiner or by a refiner which supplies fuel to the petroleum distributor which authorizes or permits

such use. The term “franchise” as defined in this paragraph includes the following:

(A) Any contract under which a petroleum retailer or petroleum distributor is authorized or permitted to occupy leased marketing premises, which premises are to be employed in connection with the sale, consignment, or distribution of fuel under a trademark which is owned or controlled by such refiner or by a refiner which supplies fuel to the petroleum distributor which authorizes or permits such occupancy.

(B) Any contract pertaining to the supply of fuel which is to be sold, consigned, or distributed under a trademark owned or controlled by a refiner, or under a contract which has existed continuously since May 15, 1973, and pursuant to which, on May 15, 1973, fuel was sold, consigned, or distributed under a trademark owned and controlled on such date by a refiner.

(C) The unexpired portion of any franchise, as defined by the preceding provisions of this subdivision, which is transferred or assigned as authorized by the provisions of such franchise or by any applicable provision of state law which permits such transfer or assignment without regard to any provision of the franchise.

(c) For purposes of this division, the term “franchise” does not include a nonprofit organization operated on a cooperative basis by and for independent retailers which wholesales goods and services primarily to its member retailers and to which all of the following is applicable:

(1) Control and ownership of each member is substantially equal.

(2) Membership is limited to those who will avail themselves of the services furnished by the organization.

(3) Transfer of ownership is prohibited or limited.

(4) Capital investment receives no return.

(5) Substantially equal benefits pass to the members on the basis of patronage of the organization.

(6) Members are not personally liable for obligations of the organization in the absence of a direct undertaking or authorization by them.

(7) Services of the organization are furnished primarily for the use of the members.

(8) Each member and prospective member is provided with an offering circular which complies with the specifications of Section 31111.

(9) No part of the receipts, income, or profit of the organization is paid to any profitmaking entity, except for arms-length payments for necessary goods and services, and members are not required to purchase goods or services from any designated profitmaking entity.

(d) The nonprofit organization is subject to an action for rescission or damages under Section 3343.7 of the Civil Code if the organization fraudulently induced the plaintiff to join the organization.

Unlawful to Sell Unless Registered or Exempted
31110. On and after April 15, 1971, it shall be unlawful for any person to offer or sell any franchise in this state unless the offer of the franchise has been registered under this part or exempted under Chapter 1 (commencing with Section 31100) of this part.

Unlawful to Sell Nonexempt Franchise Unless Licensed
31210. It is unlawful for any person to effect or attempt to effect a sale of a franchise in this state, except in transactions exempted under Chapter 1 (commencing with Section 31100) of Part 2 of this division, unless such person is: (1) identified in an application or amended application filed with the commissioner pursuant to Part 2 (commencing with Section 31100) of this division, (2) licensed by the Bureau of Real Estate as a real estate broker or real estate salesperson, or (3) licensed by the commissioner as a broker-dealer or agent pursuant to the Corporate Securities Law of 1968.

Penalty for Violating Franchise Investment Law
31410. Any person who willfully violates any provision of this law, or who willfully violates any rule or order under this law, shall upon conviction be fined not more than one hundred thousand dollars ($100,000) or imprisoned pursuant to subdivision (h) of Section 1170 of the Penal Code, or in a county jail for not more than one year, or be punished by both that fine and imprisonment; but no person may be imprisoned for the violation of any rule or order if he or she proves that he or she had no knowledge of the rule or order.

31411. Any person who willfully employs, directly or indirectly, any device, scheme, or artifice to defraud in connection with the offer or sale of any franchise or willfully engages, directly or indirectly, in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person in connection with the offer, purchase, or sale of any franchise shall upon conviction be fined not more than one hundred thousand dollars ($100,000) or imprisoned pursuant to subdivision (h) of Section 1170 of the Penal Code, or in a county jail for not more than one year, or be punished by both that fine and imprisonme
PERTINENT EXCERPTS FROM THE FAMILY CODE