Large franchisor exemption (net worth test)

A buyer meets this where the disclosure document carries a declaration instead of financial statements (O. Reg. 581/00, s. 3(1)(c)). The answer on whether resales are exempt deals with a different exemption.

How it works

Section 13(2) of the Arthur Wishart Act lets the Lieutenant Governor in Council exempt a franchisor that meets prescribed criteria from including specified financial information, on the terms of the exempting regulation. Section 11(1) of O. Reg. 581/00 sets those criteria: a net worth test on audited or review-engagement statements, a count of franchisees, time in the line of business, and a clean record of certain judgments, orders and awards. Under s. 11(3) the exemption ceases to be effective in the cases it lists, such as the franchisor ceasing to meet the net worth criterion or a listed judgment being made.

What to check or ask

• Whether the document includes financial statements or a declaration of exemption
• What the franchisor relies on to meet each criterion
• Whether it still meets them, since s. 11(3) ends the exemption in the cases it lists

Under s. 12 of the Act, in any proceeding under the Act the person claiming an exemption must prove it. This entry covers Ontario; check the rules where you are. See also franchise disclosure exemptions.