Franchise Legal Services for Foreign Franchisors Establishing Franchise Systems in Toronto, Ontario, and across Canada

Expansion into Canada is attractive to foreign based franchisors for a variety of reasons. Canada has a mature domestic economy and its citizens enjoy a high standard of living. Franchising as a preferred business model has firmly taken root. Franchised businesses in Canada generate upwards of $100 billion in annual sales. The Canadian marketplace is particularly attractive to American franchisors given the close geographic proximity, highly interconnected economies and common language, culture and tastes.

Despite the many similarities, there are significant differences between the Canadian and American business and legal environments. Foreign franchisors contemplating expansion into Canada, whether American or otherwise, must be cognizant of local realities to devise effective strategies for entry into Canadian markets.

The temptation 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.

Of particular relevance is existing provincial franchise legislation. To date five of the nine common law provinces (Alberta, Ontario, Manitoba, New Brunswick and Prince Edward Island (PEI)) have enacted franchising statutes. Unlike franchising laws in some other jurisdictions, the provincial legislation is not industry or sector specific. Rather, these laws apply to all franchise relationships. The courts have consistently stated that the purpose of the statutes is the protection of franchisees and that the legislation will be interpreted broadly and generously to redress the imbalance of power between franchisor and franchisee. Each requires franchisors to provide a disclosure document to prospective franchisees and, in certain limited circumstances, existing franchisees. The legislation protects the right of franchisees to associate with each other without interference from the franchisor and imposes on parties to franchise agreements a duty of fair dealing. The parties cannot contract out of the rights conferred by or the obligations imposed on them by the legislation.

Canadian franchise legislation imposes substantial and detailed disclosure obligations on the franchisor. Many foreign based franchisors are under similar duties to disclose information to franchisees. American franchisors, for example, are required to provide a franchise disclosure document to domestic franchisees. While these documents serve a similar function, it is a mistake to assume that they satisfy the requirements of the Canadian franchise legislation.

Canadian franchise legislation requires the disclosure of specifically enumerated items as set out in the text of the relevant provincial franchise statute and the regulations made under that statute. More importantly, the legislation also requires the disclosure of all “material facts”, which is a defined term under each province’s franchise legislation. A disclosure document must be delivered to all prospective franchisees no less than 14 days before the signing of the franchise agreement, or any other agreement relating to the franchise, or the payment to the franchisor or franchisor’s associates by the prospective franchisee of any consideration relating to the franchise. The document must contain a certificate certifying that it contains no untrue information, representations or statements and that it includes all the material facts, financial statements and other required information. The disclosure obligation is rigorous and a failure to comply with the statutory requirements can entitle a franchisee to rescind a franchise agreement up to two years after it is entered into.

Foreign franchisors looking to expand into Canada should thus seek local legal advice to ensure that their disclosure documents and statements of material change comply with the relevant statutory requirements at the time disclosure is required to be made.

We have the skills and experience to assist foreign franchisors in establishing their franchise system in Canada.

By David N. Kornhauser, MBA, LL.B. Mr. Kornhauser is corporate counsel at Macdonald Sager Manis, LLP, in Toronto, Ontario. Mr. Kornhauser’s and Mr. Kleinman’s practice includes representing both franchisors, franchisee advisory councils and franchisee associations in all aspects of franchise law. David can be contacted at 416-862-6280 or 855-324-3944 or by e-mail at david@franchisingforum.ca or dkornhauser@msmlaw.ca; Michael can be reached at or by e-mail at michael@franchisingforum.ca or mkleinman@msmlaw.ca

Related Articles

Back to Franchisors/Foreign Franchisors Home Page