Franchising and Canada – Reasons for Franchise Development up North
If you haven’t spent much time in Canada, you should know that there are five provinces in Canada with franchise laws: Alberta, Manitoba, New Brunswick, Ontario and Prince Edward Island, British Columbia is developing franchise regulations now which will govern this province. Quebec also has its own set of franchise regulations in place which are unique to the province requiring the documentation and FDD to be presented in French.
The majority of Canada has some form of Franchise Regulation in place which requires any interested franchisor to follow the necessary legal steps and documentation in order to present a franchise brand to the Canadian market.
Franchise regulations in Canada require that a franchisor needs to present an FDD to a buyer which follows standardized Canadian procedures and documentation structure allowing the buyer to get an understanding of the franchisor, the franchise concept and the terms of the relationship and legal structure between the franchisor and franchisee. Franchise transactions in Canada must be governed by the province where the franchisee is located and the franchise is to be opened which is unique to Canada vs. the United States.
The Canadian Franchise Market has grown substantially in the past ten years. The Canadian Franchise Association now bodes over 600 members and many global brands call Canada home.
The Canadian Franchise Association (CFA) is the recognized authority on franchising in Canada. With 600 corporate members nationwide, representing many of Canada’s best-known brands, CFA is the indispensable resource for the franchise community and advocates on behalf of franchisors and franchisees in Canada to enhance and protect the franchise business model. CFA promotes excellence in franchising and educates Canadians about franchising, specific franchise opportunities, and proper due diligence through its many events, programs, publications, and websites.
Where the Growth is Happening
The Canadian franchise industry encompassed 80 industries and includes many successful businesses that are focused on selling services rather than products. Service franchises offer successful business models that usually require much lower investments, generate larger product margins, and can sometimes be run from home.
The six categories with the greatest growth over a five-year period were identified through the increase of listings in categories in the 2013 edition of the FranchiseCanada directory compared the number of listings in different industry categories from 2008 to 2013 and identified some big growth trends.
Five of the six fastest-growing franchise industries were service-oriented are;
- Business Consultants / Services / Training: 211% increase
- Hair & Nail Salons / Spas: 188% increase
- Seniors / Home Care & Services: 121% increase
- Food – Restaurants / Dining Rooms: 88% increase
- Home Based Businesses: 83% increase
- Health & Fitness / Nutrition: 82% increase
Although the requirements of each province are different from one another, most nationally oriented franchisors prepare a single FDD for use in all provinces, with the possible exception of Quebec where, by reason of legal and cultural differences, it is often preferable to prepare a separate standalone document.
The FDD must be provided to a franchise buyer 14 days prior to the payment of any consideration or entering into any agreement relating to the franchise (this is currently the case in Ontario, but other provinces do allow for the provision of refundable deposits). If this period is not observed, the franchisee may have the right to rescind or cancel, the whole arrangement with the return of fees paid, the repurchase by the franchisor of inventory, equipment, and supplies, and the reimbursement of all losses incurred in the establishment of the franchise.
Thus, it is essential that care be taken to ensure that not only are your Canadian documents written in complete compliance with the law but that procedural compliance with the legislation is observed as well. A well-drafted American FDD can usually be converted into a compliant Canadian FDD relatively easily.
Unlike in the U.S., there are no registration requirements in Canada and there are no specific provincial regulators in place to review and approve franchise offerings. Canadian FDDs are not subject to a review and approval process. Our franchise laws are somewhat less defined than the revised FTC rule and related guidelines which provide ample detail on the content requirements for American FDDs.
Canadian franchise lawyers rely on the growing body of case law and precedent to interpret the requirements of the relevant statutes and it is generally agreed that the legislation has been interpreted in a franchisee-friendly fashion. This only emphasizes the need to hire qualified Canadian franchise counsel for any foray into the Canadian franchising marketplace.
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