Franchising in Canada: Part III
Franchising in Canada can be simplified by following a number of simple steps. Knowing what structure you wish to franchise your business in will help, while experienced legal advisors will take you to the next step. If you are an American company wanting to set up franchisees in Canada, this post lays the groundwork for some of the initial steps you need to take as a franchisor.
The (American) Federal Trade Commission governs franchisors and franchisees in the United States, while the Canadian Franchise Association sets some guidelines applicable to certain provinces and territories in Canada. It should be noted that the U.S. Federal Trade Commission does not have a Canadian equivalent. The provinces of British Columbia, Alberta, Manitoba, Ontario, Prince Edward Island (PEI) and New Brunswick each have their own provincial legislation regarding franchising while the provinces of Saskatchewan, Quebec, Halifax, Nunavut and Nova Scotia do not. Additionally, the Yukon Territory and Northwest Territories do not have their own individual franchise legislation.
While some of the provinces and territories listed above have their own specific franchise regulations, there remains consistent wording and regulations between the provinces and territories. For instance, Alberta’s Franchises Act contains similar provisions to Ontario’s Arthur Wishart (Franchise Disclosure) Act
What do I need to know about setting up a franchise in Canada?
Similar to the United States, there are three major forms of franchising in Canada: (i) Unit Franchising, (ii) Area Development Franchising, and (iii) Master Franchising. Depending on the structure that is chosen, each option has its pros and cons. Unit franchises typically involve franchisors granting certain rights and license to a franchisee. This “right” allows a franchisee to operate their business at a single location. Area Development Franchising involves the right of a franchisee to develop more than one franchise in a large geographical area. This option is usually selected for rapidly expanding stores within a territory. Lastly, Master Franchising involves the right of a franchisee to operate in an exclusive territory. This exclusive territory is also known as an area development-type franchise.
What do I need to disclose to the Franchisee?
- Amongst other items, a franchisor must provide financial statements
- A Franchise Disclosure Document (FDD) must be provided to the franchisee by the franchisor
- Financial disclosure should be made by way of audited financial statements that have been prepared in accordance with GAAP or IFRS, pursuant to the Canadian Institute of Chartered Accountants (handbook)
- Consolidated financial statements of the franchisor are usually not accepted. If the franchisor has only been in operations for one year or less, the FDD only needs to include the franchisor’s opening balance sheet.
This post demonstrates that a simple way to get ahead with your new Canadian franchise is to stay ahead of your financial reporting and FDD obligations. Knowing the particular provincial legislation that applies to your franchise will also hold you in good stead for gearing up for your franchise.
If you have questions regarding your new Canadian franchise or you are wanting to set up a Canadian franchise, get in touch with one of our franchise attorneys today. Call us today at 604-930-9578 or 1-800-930-9986.