Franchising In Canada For Foreign Franchisors; Part 1 – Method Of Expansion

Expansion into Canada is attractive to foreign franchisors: Canada has a mature economy and a high standard of living. American franchisors find Canada particularly attractive given the close geographic proximity, highly interconnected economies, common language, culture and tastes. Notwithstanding these similarities, there are many differences between the business and legal environments in Canada and the United States.

Entry into Canada can be carried out in a number of ways. The simplest method is direct grants by a foreign based franchisor to individual Canadian franchisees. This may be accomplished directly from the franchisor’s home office or through a branch operation in Canada. The main advantage is simplicity. Franchisors already possess the expertise to effectively and efficiently establish new franchises in their home markets.

The temptation however is to assume that strategies developed for domestic franchising, and the legal and business considerations implicit in them, are seamlessly applicable to expansion into Canada. This is simply not the case. The granting process must be adapted to meet Canadian realities. Considerable research will be required, and legal advice obtained, to ensure that Canadian franchises are established and operated in compliance with federal and provincial laws and in a manner that is sensitive to local and regional practices.

An alternative method, and one that is considered as more efficient, is the creation of a Canadian based subsidiary that in turn would enter into single unit, area development or master franchise agreements with local individuals or businesses. Given the increasing sophistication of the Canadian franchising marketplace and the enactment of provincial franchise legislation, opening an office in Canada staffed by local, expert professionals facilitates the implementation of more effective strategies for comprehensive expansion into Canada than might otherwise be possible through the piecemeal approach of direct franchising by foreign based franchisors unfamiliar with Canadian requirements and realities.

This is a brief outline and one of a series of articles designed to assist foreign franchisors in understanding some of the issues faced by foreign franchisors intending to expand operations into Canada. Careful planning, coupled with expert legal and financial advice, is essential to ensure the success of any entry strategy undertaken. Mr. David Kornhauser, one of the lawyers behind the website www.franchisingforum.ca, provides advice to foreign franchisors about franchise law to clients who wish to franchise in Ontario or elsewhere across Canada. You can reach Mr. Kornhauser either at or david@franchisingforum.ca.

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