What You Should Know About Franchise Disclosure Requirements

AWA Disclosure Franchise Prospects

When deciding whether to purchase a franchise there is certain material information that must be considered in order to make an informed decision. Such material information is possessed solely by the franchisor so various provinces have enacted legislation that among other things, helps balance the inequality of information between the franchisor and franchisee. In Ontario, the relationship between franchisee and franchisor is governed by the Arthur Wishart Act
(Franchise Disclosure), (the “Act”).

In Ontario, franchise systems are required to provide a Disclosure Document to prospective franchisees. A Disclosure Document is a summary of information on the franchisor, its executive team and its franchise agreements and must contain material information prescribed by the Act that will assist a franchisee in making an informed decision regarding the purchase of the franchise. This includes but is not limited to background information on the franchisor and its directors, financial statements and copies of all agreements relating to the franchise.

Keep in mind that the Disclosure Document is only a summary of important information. Prospective franchisees should also closely review the franchise agreement. The franchise agreement sets out the duties and obligations of the franchisor to the franchisee and vice versa, so it is important to make sure to read and understand these documents. It is also important to have the Disclosure Document and the franchise agreement reviewed by professionals who are familiar with the obligations and rights set out by the Act.

In addition to legal advice, potential franchisees should seek advice from an accountant, a financial advisor and their bank to ensure that they can financially afford the investment. The bank may also request a copy of the Disclosure Document so that they can make an informed lending decision.

Keyser Mason Ball, LLP does not provide financial or accounting advice. A prospective franchisee should seek financial and accounting advice in relation to franchising and the franchise agreement prior to entering into the franchise agreement.