How a Franchise Agreement and a Franchise Disclosure Document differ
There are two documents that are of vital importance...
Franchising in Canada is governed provincially rather than federally, and where franchise legislation exists, its primary purpose is to allow franchisees to make informed decisions regarding the purchase and operation of a franchise in those provinces.
Even if you are not within a province where legislation exists, it is worth understanding its purpose and evaluating whether you should take anything covered by legislation into account to protect yourself and to ensure that you remain on a sound legal footing when undertaking any work in relation to your new business venture.
The most critical obligation of a franchise is the duty of disclosure, whereby franchisors must provide prospective franchisees with a franchise disclosure document at least two weeks prior to the franchisee signing any agreements or making any payments.
The franchisee is also entitled to a cooling-off period of 60 days from receipt of the franchise disclosure document. This means that even if they have already made a payment, they have the right to have that money returned should any of the information provided in the disclosure document cause them to change their mind about becoming a franchisee.
If a franchise disclosure document is not provided, a franchisee may change their mind and rescind a franchise agreement within two years of signing it, so it is in the best interests of both the franchisor and franchisee to have a disclosure document in place and available prior to any contracts being signed or money changing hands.
Franchise disclosure documents are live documents and must be updated whenever a material change comes into effect, and this must be communicated to all franchisees, both existing and prospective, as soon as practicable after the change occurs.
Canadian legislation also allows franchisees to form or join an association of franchisees and associate with other franchisees.
It is useful to note that all franchisees that are members of the Canadian Franchise Association must have a franchise disclosure document that is compliant with all relevant regulations for all jurisdictions in which they operate or plan to operate in the future.
Membership in the Canadian Franchise Association adds a level of credibility and professionalism to franchises and provides education, networking and lead generation services to its members. Members also have to comply with the Association's Code of Ethics, which also prohibit discrimination based on any protected factors.
We therefore urge you to carefully consider your options before you progress an application to become a franchisee of an organization that is not a member of the Canadian Franchise Association.
