How does owning a franchise work?

Owning a franchise is an ongoing relationship with the franchisor, not a one-time purchase. The Canadian Franchise Association describes franchising as a business relationship in which an owner, the franchisor, gives a licence to a third party, the franchisee, allowing them the right to use its operating system, name, trademarked materials, products and marketing techniques. What follows covers how that relationship runs day to day.

What you pay

The Association says a franchisee pays a fee, typically an initial franchisee fee and ongoing royalties, to the franchisor for the right to use its trademarks and business system. Ontario’s Arthur Wishart Act and British Columbia’s Franchises Act both make it part of the definition of a franchise that the franchisee is required to make a payment or continuing payments, whether direct or indirect, to the franchisor or its associate, in the course of operating the business or as a condition of acquiring the franchise or commencing operations.

How much control the franchisor has

Both Acts also look at the franchisor’s role. One form of franchise under either Act pairs the right to sell goods or services substantially associated with the franchisor’s trademark with a franchisor that exercises significant control over, or offers significant assistance for, the franchisee’s method of operation, including building design and furnishings, locations, business organization, marketing techniques or training. Ontario’s Act also covers a franchisor that has the right to exercise that control or provide that assistance, and both Acts list arrangements they do not apply to. Read the franchise agreement for what you must follow and what you may decide yourself.

Disclosure and fair dealing

The Association says franchise disclosure laws exist in British Columbia, Alberta, Manitoba, New Brunswick, Ontario, Prince Edward Island and Saskatchewan. They require a disclosure document within a set time frame. Ontario’s Act says a prospective franchisee must receive the disclosure document not less than 14 days before the earlier of the events listed in section 5, subject to the exemptions in section 5(7). Both Ontario and British Columbia also say every franchise agreement imposes a duty of fair dealing on each party. Other provinces differ, so check the law where the franchise operates. See how to buy a franchise in Canada.