Franchising in British Columbia
Franchising is a popular business model that allows entrepreneurs to expand their business by granting the right to use their trademark, trade secrets, and operating systems to other individuals or entities. The franchisor provides the franchisee with the necessary training and support to operate the franchise successfully. A franchisor is the individual or company that sells or grants a licensed business model (i.e., the franchise) to the franchisee. A franchisee is the individual or company that purchases to own or is assigned the right to operate the licensed business model. In British Columbia, franchisors and franchisees are subject to the Franchises Act, which is a set of rules that governs the relationship between them.
The Franchises Act, which came into effect on February 1, 2017, is designed to provide protection to franchisees against unfair practices and to promote fairness and transparency in franchising. The act applies to all franchises operating in British Columbia, regardless of whether the franchisor or franchisee is based in the province.
Franchise Disclosure Requirements
One of the main features of the Franchises Act is the requirement for franchisors to provide a disclosure document to prospective franchisees before they sign a franchise agreement. Franchisors are required to provide prospective franchisees with disclosure documents at least 14 days before they enter into a franchise agreement.
The disclosure documents must include, but is not limited to, the following information:
- Business background: The franchisor must provide a brief history of their business, including their ownership structure, number of franchisees, and any past bankruptcies or legal issues.
- Franchise fees and other costs: The franchisor must disclose all costs associated with owning and operating the franchise, including the initial franchise fee, ongoing royalties, advertising fees, and other expenses.
- Franchisee obligations: The franchisor must outline the franchisee's obligations under the franchise agreement, including their responsibilities for advertising, marketing, training, and operation of the franchise.
- Restrictions on the franchisee: The franchisor must disclose any restrictions on the franchisee's ability to operate the franchise, such as territorial restrictions, restrictions on the products or services that can be offered, or any restrictions on the use of the franchisor's trademarks or operating systems.
- Intellectual property: The franchisor must disclose any intellectual property rights associated with the franchise, including trademarks, trade secrets, and patents.
- Financial statements: The franchisor must provide the franchisee with a copy of their audited financial statements for the previous two years, as well as a statement of all material changes to their financial position since the date of the most recent financial statement.
- Other material facts: The franchisor must disclose any other material facts that could have an impact on the franchisee's decision to enter into the franchise agreement.
Franchise Lawyers Victoria, BC
The purpose of the disclosure document is to provide prospective franchisees with all the information they need to make an informed decision about whether to enter into a franchise agreement. It is important for franchisees to carefully review the disclosure document and seek legal and financial advice before signing a franchise agreement. At Velletta Pedersen Christie, we understand the complexities of franchising and have extensive experience representing both franchisors and franchisees. Our legal team has the knowledge and expertise to provide valuable advice to clients on all aspects of franchising, from structuring and negotiating franchise agreements to resolving disputes between franchisors and franchisees.
A Cautionary Note:
This article provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.