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BUSINESS BLOG


Franchise Law: Frequently Asked Questions


Nate King 2016-08-23

What is franchising?

Franchising is a way of doing business where one person, the franchisor, gives another person, the franchisee, specific rights as laid out in the franchise agreement. These rights dictate how the franchisee will run his or her business. The franchisee is given access to the franchisor’s established business system including operation manuals.

 

 What kind of businesses can be franchised?

Most people think about fast food when they think about franchising, but any business that can be exactly replicated in another location can be a franchise, in industries ranging from automotive to fitness to senior care, and education.

 

 What is franchise law?
Franchise law in Canada is a provincial jurisdiction but while differences do exist among the provinces, these differences are few and minor. The most important and fundamental issues tend to be uniform across the country. In Ontario, the legislation that governs franchise is called the Arthur Wishart Act (Franchise Disclosure), 2000. The law encourages fair dealing in franchises.

 

 What information does the disclosure document have to include?
The franchisor has to provide information about his or her business background, bankruptcy or insolvency information, financial statements, and litigation history. Further information will also have to cover the franchise offer, like costs, restrictions, training and other assistance programs, copies of proposed franchise agreements, a list of current and former franchisees, and advertising funds. This disclosure must be provided at least 14 days before a franchise agreement is signed, or before any payment relating to a franchise is made.


What happens if the disclosure document isn’t provided on time, or doesn’t have all of the information required?

The franchisee may cancel the agreement within 60 days of receiving a disclosure document without penalty or obligation. If no disclosure document is provided, the franchisee can cancel the agreement up to two years after entering into the agreement, with no penalty or obligation.

If the franchisee suffers a loss because of a misrepresentation in the document or the disclosure document doesn’t meet the requirements, the franchisee can sue for damages.

 

 Should I work with a franchise lawyer?
Franchise dealership law can be difficult and obscure in parts, so for your best protection, if you are thinking about buying a franchise or are already a franchisee and having some issues, it might be a good idea to meet with a franchise lawyer for some help. Those of you living in Toronto may want to consult with Hoffer Adler LLP for more information.

 

 Is it hard to start a franchise?

It may be confusing to someone who hasn’t done it before. The law has requirements for disclosing information before a franchise can be sold. It’s best to deal with a lawyer who specializes in franchise law because these attorneys tend to stay on top of changes in the law, and forms, which can help the process go smoothly.

 

 What are some advantages and disadvantages of franchising?

Advantages for the franchisee are: he or she is the owner of its own business and usually owns the assets of the franchise outlet; the franchisee can sell the business when he or she wishes to do so, depending on the pre-emption right and if there are conditions set by the franchisor; and the franchisee benefits from the brand presentation and profile already established by the franchise, which would likely not be achieved by an individual small business owner.

The main disadvantage with being a franchisee is that he or she is not a totally independent entrepreneur because he or she must adopt the business system of the franchisor.

 

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