FranchiseCanada SeptemberOctober 2017

FranchiseCanada September | October 2017 109

D

isclosure Documents are a summary of informa-

tion on the franchisor, its executive team, and

its franchise agreements. The document is pro-

vided to potential franchisees so that they may

make a more fully informed business decision. In Canada,

franchise systems are required by law to provide a Disclo-

sure Document to prospective franchisees in provinces

where franchise legislation is enacted. (Learn more about

provincial franchise legislation at http://www.cfa.ca/Advocacy/

Franchise_Legislation). Although franchise systems are

only legally required to provide Disclosure Documents

in these six provinces (British Columbia, Alberta, Mani-

toba, Ontario, New Brunswick, and Prince Edward Island),

many franchisors provide a disclosure document across

all of Canada to assist prospective franchisees in learning

about the franchise opportunity.

Franchisors have different application processes

for franchisees, but will typically provide the Disclo-

sure Document to prospective franchisees once they

have been qualified as a potential franchisee and have

shown serious interest in the franchise opportunity. It

is not a public document, and is usually only available

to serious investors.

When a franchise system fails to provide proper dis-

closure within the provinces where disclosure is legally

required, potential franchisees may have the ability to

rescind the franchise agreement for up to two years from

when the franchise was granted. In the event that the

agreement is rescinded, the law may also provide that

potential franchisees will be compensated for all losses

incurred in acquiring, setting up, and operating the fran-

chise business. Be sure to speak with your franchise law-

yer for details.

The Disclosure Document must meet legislative

requirements and disclose all material facts regarding

the franchise opportunity and the franchise system’s

history. There are required statements pertaining to risk

and seeking legal and financial advice. To learn specifi-

cally what legislative requirements are in place, you can

visit the Advocacy section of the Canadian Franchise

Association website at http://www.cfa.ca/Advocacy/.

A typical Table of Contents of a Disclosure Document

might read as follows:

• Corporate name of the franchisor


• Nature of the business


• Business experience of the directors and officers of
  the franchisor
  
  
  • Previous convictions, civil actions, administrative
    proceedings, bankruptcies or liabilities of the franchi-
    sor, its directors, officers, and associates
  
  
  • Initial investment required
  
  
  • Other fees payable under the franchise agreement
  
  
  • Estimate on working capital, annual operating costs
  
  
  • Earning projections
  
  
  • Training provided, with outline of initial training program
  
  
  • Financing arrangements
  
  
  • Assistance provided by the franchisor
  
  
  • Franchisee obligations
  
  
  • Marketing fund: use of, past spending, projected spending
  
  
  • Restrictions on what and to whom franchisees may sell
  
  
  • Special licences required
  
  
  • Volume rebates and discount policies
  
  
  • Obligations to participate in the actual operations of
    the franchised business
  
  
  • Trademarks, patent, and copyright information
  
  
  • Territories available
  
  
  • Term, renewal, termination, and transfer of the franchise
  
  
  • Policies regarding dispute resolution
  
  
  
  

In addition, the disclosure will typically have the fol-

lowing in attachments:

• List of existing franchisees with contact information


• List of terminated, not renewed or cancelled franchi-
  sees with contact information


• Financial Statements of the franchisor


• Franchise Agreement


• Table of Contents of the Operations Manual


• Certificate of Franchisor signed by an officer of the
  company stating that all material facts have been pro-
  vided and that the information provided is true


• Receipt to be signed and dated by the franchisee ac-
  knowledging receipt of the Disclosure Document

The disclosure document is only a summary of impor-

tant information. Potential franchisees should study

the franchise agreement in detail, as this is ultimately

the document they will be signing. Legal and finan-

cial advisors, along with the franchisor, will all assist

potential franchisees in reviewing the documents and

in clarifying the obligations as a franchisee of the fran-

chise system. Lawyers with franchising experience can

review the disclosure document so that he or she can

ensure that it meets all legal requirements. Potential

Tutorial

4

THE FUNDAMENTALS OF FRANCHISING

Intro to Disclosure Documents

FRANCHISE TUTORIAL

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