Franchising in Ontario: preparing your disclosure document

Turning an existing business into a franchise network takes more than a well-drafted agreement. Before selling your first franchise in Ontario, you must give prospective franchisees the information they need to make an informed decision. The disclosure document is a legal requirement, but it is also a practical test: are your commitments, fees and methods defined clearly enough to explain without ambiguity?

1. Understand Ontario’s requirements

In Ontario, the Arthur Wishart Act (Franchise Disclosure), 2000 and its regulation govern pre-contractual disclosure, among other matters. They also impose a duty of fair dealing and protect franchisees’ right to associate.

Subject to applicable exceptions, the franchisor must give the prospective franchisee the disclosure document at least 14 days before they sign a franchise agreement or any other agreement relating to the franchise, or pay any money to the franchisor or a franchisor’s associate, whichever happens first.

Certain exceptions apply to preliminary commitments or deposits that meet specific conditions. Do not rely on them without legal advice. For a first sale, the safest internal rule is to prevent any signing or acceptance of payments until your legal adviser gives clearance.

There is no government registration of the disclosure document that amounts to approval of your offering. Responsibility for compliance remains with the franchisor. Missing or deficient disclosure may give rise to claims for rescission and damages, among other remedies.

2. Build an evidence file, not a brochure

The document must include the prescribed information and all material facts: facts that could reasonably be expected to have a significant effect on the value of the franchise or the decision to buy it. A flattering sales presentation is therefore not enough.

Before asking a lawyer to draft the document, assemble a structured file covering, in particular:

• the franchisor’s identity, organisational structure and the relevant backgrounds of its senior management;
• legal proceedings, insolvencies and other matters requiring disclosure;
• initial franchise fees, royalties, advertising contributions and other mandatory charges;
• the estimated initial investment and the assumptions used;
• purchasing obligations, territorial restrictions and promised support;
• draft agreements and the required information about outlets and franchisees;
• the status of trade marks and the rights permitting their use.

Assign someone responsibility for each piece of information and retain supporting evidence. For example, the cost of mandatory software should match a supplier’s quotation or documented pricing, rather than a figure recalled by a director.

If no franchises are operating yet, make that clear. Do not present company-owned outlets as independently owned franchises.

3. Align figures, agreements and promises

The disclosure document, franchise agreement and operations manual must reflect the same reality. If your sales presentation promises on-site training, the agreement should not describe only remote training without explanation.

Create a cross-reference table with four columns: commitment, relevant document, cost to the franchisee and person responsible for delivery. Pay particular attention to training, support at opening, mandatory purchases, digital tools and future refurbishments.

The franchisor’s financial statements must meet regulatory requirements. Unless an exemption applies, plan for audited financial statements or statements prepared under a review engagement. Involve your accountant early: the existing business’s internal accounts do not automatically replace the financial statements required for the franchisor entity.

If you provide projections or performance information, have their basis and the corresponding disclosure obligations checked. An outlet’s turnover does not demonstrate the profit a franchisee will make. Avoid off-the-cuff estimates in emails or meetings too.

4. Arrange complete, traceable delivery

Prepare a complete final version, including appendices, proposed agreements and the required certificate. The document must be delivered as a compliant package, not pieced together over time from scattered emails.

For each prospective franchisee, retain:

• the exact version delivered, including its appendices;
• the delivery date and method;
• any available proof of receipt;
• the earliest permitted date for signing or payment, confirmed by your legal adviser.

Electronic delivery must meet the applicable conditions. An acknowledgement of receipt does not remedy an incomplete document or allow the prospective franchisee to waive the statutory waiting period.

Train everyone involved in recruitment to follow this procedure. A request to ‘reserve’ a franchise sent too early can jeopardise an otherwise well-prepared process.

5. Monitor changes until signing

Between disclosure and completion, monitor material changes, such as a major change in fees, the loss of a key supplier or a substantial alteration to the support offered. A statement of material change may need to be delivered as soon as practicable and before signing or payment. Ask your lawyer to determine the appropriate procedure.

This guide covers Ontario. Before recruiting elsewhere in Canada, check the applicable provincial rules; an Ontario disclosure package does not guarantee compliance nationwide.

Key takeaway: before making your first offer, gather your evidence, align your documents and put controls in place to prevent premature signing or payment. A strong franchise network starts with transparent, verifiable commitments.