Franchising in Canada: distinguishing a licence from a franchise

You run a profitable business and want to allow other entrepreneurs to replicate your concept. A ‘trade mark licence’ may seem simpler than a franchise. Yet the title of the agreement does not determine your legal obligations. Before building your franchise network, check what rights you are actually granting, what requirements you impose and how you are paid.

1. Start with how the arrangement works, not the agreement’s name

A licence allows a third party to use certain intellectual property rights, such as a trade mark, on specified terms. Franchising generally goes further: it allows someone to replicate a business model using the associated intellectual property, often with training or support.

However, this commercial distinction does not replace the applicable legal definition. Provincial legislation may cover a relationship described as a ‘licence’, ‘partnership’ or ‘distribution arrangement’ if its features meet the definition of a franchise.

In Manitoba, The Franchises Act, C.C.S.M. c. F156, defines one form of franchise through a combination of payments, an association with a trade mark, and significant control over or significant assistance with the method of operation. The definition also covers other situations, so this first set of criteria is neither a universal nor an exhaustive test.

Practical implication: do not choose a label to avoid legal obligations. Have the proposed relationship legally assessed before offering an agreement or accepting money.

2. Map out the rights, payments and support

Prepare a fact sheet describing your proposed model. It should reflect the actual dealings between the parties, including anything not yet covered by your draft agreement.

Gather the following details:

• Rights granted: use of the trading name, trade mark, recipes, software or sales methods.
• Planned payments: initial fees, royalties, paid training, compulsory subscriptions or purchases from a related company.
• Operating requirements: prescribed fit-out, opening hours, product range, procedures, digital tools and business practices.
• Support offered: premises selection, launch support, training, management advice or sales support.
• Parties involved: the company that owns the trade mark, the company that issues invoices and the company that provides support.

The absence of a payment labelled ‘royalty’ does not rule out a franchise. Depending on the applicable definition, indirect payments or other financial commitments may count.

Attach your sales presentations and email templates to the fact sheet. If your agreement promises only a licence, but your sales pitch describes a turnkey concept with extensive support, that discrepancy needs to be examined.

3. Check the implications in the target province

Canada has no general federal franchising law. Franchise-specific obligations are governed by provincial legislation; other laws, including the Trademarks Act and the Competition Act, may also apply.

For each proposed location, have the provincial definition, territorial application rules and any exemptions checked. Choosing another province’s law to govern the agreement does not necessarily override the mandatory protections where the business operates.

In Manitoba, The Franchises Act requires, among other things, a disclosure document to be provided at least 14 days before a franchise agreement or another agreement relating to the franchise is signed, or any consideration relating to the franchise is paid, whichever applicable event occurs first, subject to statutory exceptions.

In Ontario, the Arthur Wishart Act (Franchise Disclosure), 2000 also requires advance disclosure. The Ontario government neither reviews nor approves franchisors or their disclosure documents. A business therefore cannot present its model as a franchise ‘approved’ by the province.

Quebec has no general franchise-specific legislation. This does not create a legal vacuum: the Civil Code of Québec governs matters including contracts and good faith, and language requirements must also be examined.

4. Set a legal review checkpoint before marketing the opportunity

Ask a specialist lawyer to assess your model using the fact sheet and supporting documents. The aim is to obtain an actionable conclusion: how should the relationship be classified, which obligations must you meet, and what changes are needed before you start approaching prospective partners?

Do not artificially reduce the support needed for the concept to succeed simply to try to fall outside a legal definition. If the model requires a common operating framework and structured support, it is better to set up the franchise properly.

Keep the assessment and revisit it whenever the model changes. A limited licence may change in legal character if you add compulsory payments, an operating system or significant support.

Key takeaway: first describe the actual relationship, have its legal status assessed in each target province, then prepare the appropriate documents. The right agreement reflects your model; its title does not change what it is.