What do I actually own when I buy a franchise?

If you picture a franchise as a business owned outright, that is not how the law describes it. A franchise is more specific than that. It is a right to run a business within someone else’s brand and system, held under a contract, and it comes with payments to the franchisor or the franchisor’s associate. Your own location is still yours to operate, but the brand behind it is not yours.

What the law says a franchise is

Ontario’s Arthur Wishart Act (Franchise Disclosure), 2000 defines a franchise as a right to engage in a business where the franchisee is required by contract or otherwise to make a payment or continuing payments to the franchisor or the franchisor’s associate. One way it can qualify is where the franchisor grants the right to sell, offer for sale or distribute goods or services substantially associated with a trade-mark, trade name, logo or other commercial symbol that is owned by or licensed to the franchisor or its associate, and the franchisor or its associate has the right to exercise or exercises significant control over, or has the right to provide or provides significant assistance in, the franchisee’s method of operation. British Columbia’s Franchises Act uses a similar definition, with differences in wording. Other provinces may define it differently.

Licensed, not owner, of the system and marks

The Canadian Franchise Association describes franchising as a relationship in which the franchisor gives a licence to the franchisee to use its operating system, name, trademarked materials, products and marketing techniques. It adds that as a franchisee you are licensed to use the system’s branding, trademarks and proprietary products and services. A licence is permission, so the brand is not transferred to you. The same association also describes franchisees as being in business for themselves, which is the part you run.

What is left for you to confirm

The statutes and the association do not tell you what else you own. That sits in your agreement and the deal. Ask which assets are included, such as equipment, inventory and the premises lease, and who holds the lease. Ask what happens to the brand rights if the agreement ends or is not renewed, and what you can sell on. If you are buying an existing location, read how the franchisor handles a franchise transfer, and see what to check in the franchise agreement.