Franchising in Canada: facilitating an independent review

Turning an existing business into a franchise means accepting outside scrutiny of your business model. Before joining your franchise network, a prospective franchisee should be able to have your offer reviewed by their own advisers. Preparing for this independent review helps clarify commitments, identify ambiguities and ensure that no essential question remains unanswered when it is time to sign.

1. Distinguish between disclosure obligations and independent review

The franchisor provides the information required by law; the prospective franchisee’s advisers assess what it means for their client. These roles complement one another, but neither replaces the other. A meeting with your accountant does not constitute an independent financial review for the buyer.

In Ontario, the Arthur Wishart Act (Franchise Disclosure), 2000 governs pre-contractual disclosure, among other matters. Subject to the statutory exceptions, the prospective franchisee must receive the disclosure document at least 14 days before signing the franchise agreement or any other agreement relating to the franchise, or paying any consideration, whichever applicable event occurs first.

Ontario Regulation 581/00 requires a statement recommending that prospective franchisees seek independent legal and financial advice before entering into the agreement. This recommendation does not mean that the government endorses the offer: Ontario makes clear that it neither reviews nor approves franchisors or their disclosure documents.

Manitoba and New Brunswick also have franchise legislation requiring pre-contractual disclosure. The specific requirements and exceptions must be checked in the relevant province. Do not therefore turn a process designed for Ontario into a nationwide procedure without legal review.

Above all, the applicable 14-day period is a statutory minimum, not a guarantee that the review will be complete. Avoid suggesting that its expiry creates an obligation to sign.

2. Make the offer genuinely reviewable

Before offering your first franchise, check that your documents allow an external adviser to understand how the business works financially and contractually. A substantial but hard-to-navigate set of documents creates unnecessary questions.

Prepare a reading guide that points to the relevant documents and clauses, without replacing or splitting up the statutory disclosure document. Organise the material around practical questions:

• How much will the prospective franchisee need to commit, and when?
• Which obligations will continue even if the outlet runs into difficulties?
• Which services are included, optional or charged separately?
• What personal commitments or guarantees are required?
• Which financial assumptions are based on observed results, and which still need to be verified?

For a business new to franchising, clearly distinguish the results of your company-owned outlets from projections for a future franchise. The financial adviser must be able to identify differences such as the owner-manager’s remuneration, rent, financing costs or expenses specific to the franchisee.

Have the guide checked for consistency with the official documents. It should make them easier to read, not offer a simplified version that downplays the risks. Any information shared must also comply with your confidentiality and personal data protection obligations.

3. Protect the choice of advisers

Encourage the prospective franchisee to choose a lawyer familiar with franchise law in the relevant province, as well as a professional who can assess their financial needs. Your own lawyer represents your interests: explaining a clause does not make them the prospective franchisee’s lawyer.

If you provide professional contact details, offer several options without insisting on a particular firm. Disclose any relevant business relationships. Avoid arrangements that suggest the adviser is expected to help secure the sale.

Then appoint someone within your business to receive questions, obtaining the prospective franchisee’s agreement where communication takes place through their advisers. This contact should know where to direct each issue: the operations manager explains working practices, the accountant clarifies the figures, and the lawyer handles legal interpretations.

Do not ask the prospective franchisee to share confidential legal advice with you. You need to know their questions and requests for amendments, not the content of their private consultations.

4. Address questions without undermining protections

Keep a record of questions, answers, documents shared and outstanding issues. Respond in writing where a clarification could influence the decision. A reassuring verbal promise must not contradict a more limited contractual commitment.

If a question reveals an omission, inconsistency or potentially material change, ask your lawyer to assess the implications before proceeding. A simple explanatory email will not necessarily remedy a failure to meet statutory disclosure requirements.

Finally, never suggest that involving an adviser amounts to a waiver of the franchisee’s statutory protections. Confirmation that advice has been sought does not replace your own obligations.

Key takeaway: before making your first offer, prepare clear documentation, a process for answering questions and a timetable that allows for a genuine independent review. A strong franchise network starts with commitments that are understood, not merely signed.