Choosing a profitable franchise When thinking...
As with all things in life, when starting a franchise it’s important to be well informed. So if you’re in the market for a franchise business in Ontario you should know about the Arthur Wishart Act.
The Arthur Wishart Act (Financial Disclosure) was put into law to provide consumer protection for franchisees in the province of Ontario. Passed in 2000 and put into effect in 2001, the Wishart Act defines exactly what a franchise is and demands a policy of “fair dealing” between the franchisor and franchisee. It also allows franchisees the right of association, meaning they can form a group and their respective franchisors cannot lawfully interfere. Most importantly though, the Wishart Act decrees that franchisors must deliver disclosure documents which contain all the financial information and data needed to understand their business and all that is involved in running it.
The Wishart Act uses broad terms, but can be boiled down to an easier explanation. According to the Act, a franchise is any business agreement where one party agrees to pay a fee to use the other party’s brand name, services, or products. The franchisee has the right to sell their products while the franchisor takes a cut of the profits.
The most important aspect of the Act is that disclosure documents must be delivered to the franchisee at least 14 days prior to signing any franchise agreement. If the franchisee does not receive these documents on time they can back out of the agreement with no penalty. For the franchisor there can be heavy penalties for not providing accurate, concise disclosure documents. The disclosure documents are often hundreds of pages long, however, so any prospective franchisee could do well to hire a layer to thoroughly read through them.
In 2010, an amendment to the Wishart Act was proposed by a group of franchisees with the backing of MPs in all three major political parties. The amendment, Bill 102, proposed adding the requirement of providing “educational documents” along with the disclosure documents. The educational documents go into exhaustive detail about every aspect of the business, how it runs, its products, and even some aspects that aren’t directly related to it.
Steven Goldman, a franchise lawyer with Golman Hine LLP Barristers, explained Bill 102 in an email, “The questions set out in the bill which prospective franchisees should consider before entering into a franchise agreement are all very good questions which ought to be considered as part of their due diligence. Should the law require a prospective franchisee (or any other purchaser of a business) to conduct proper due diligence before buying a business by addressing and considering the questions raised in Bill 102? Many would argue from a public policy perspective that such a law goes too far.”
Goldman continued to explain, “From the Franchisor’s perspective, the disclosure document obligations under the Wishart Act are already very onerous, expensive to comply with, and a landmine for potential liability if not properly prepared and updated on a regular basis. The educational document contemplated by Bill 102 would, from a franchisor’s perspective, simply add to their burden. It would also go far beyond what any other jurisdiction in Canada requires of a franchisor. The bill also does not address what the remedies or penalties would be for a franchisor if it does not comply with the education document requirements.”
Bill 102, however, was never passed through the legislature. It remains an item buried in the archival records.