How do I buy a franchise in Canada, step by step?

People searching for how to start a franchise may expect a single national process. There is not one. Franchise disclosure in Canada is regulated provincially, and, where the province in which the franchise will operate has a franchise Act, that statute sets the order in which things must happen. What follows is the sequence that the main provincial statutes and BDC’s guidance point to, from first enquiry to signing. Treat it as a map: each province’s Act has its own wording, exemptions and remedies, and the steps that matter most are the ones that protect your right to read before you commit.

Step one: learn which law governs the sale

The Canadian Franchise Association notes that disclosure is regulated at the provincial level rather than through a single national law, and that there are important differences between jurisdictions. The CFA lists Ontario, British Columbia, Alberta, Manitoba, New Brunswick and Prince Edward Island as having franchise Acts and says Saskatchewan has passed one, but not every province has one. Before you pay an application fee or sign a confidentiality agreement, ask the franchisor which province’s law it says governs the sale and whether it relies on any exemption. Ontario’s Act puts the burden of proving an exemption, in any proceeding under the Act, on the person claiming it.

Step two: receive the disclosure document and count the days

In Ontario, subject to the exemptions in section 5(7), the franchisor shall provide a prospective franchisee with a disclosure document, and the franchisee shall receive it not less than 14 days before the earlier of signing the franchise agreement or any other agreement relating to the franchise (with some limited exceptions) and paying any consideration to the franchisor or its associate relating to the franchise, with some deposits excluded. Alberta and Manitoba require that the document be received at least 14 days before specified events, and British Columbia and New Brunswick use the same period, each subject to the exemptions in its own Act. Record the date and time the document arrives, because the period is counted from when you receive it. Ontario also requires that the document be one document, delivered at one time, and that it be accurate, clear and concise. Ontario’s Act also deals with a statement of material change. A material change is a change in the business, operations, capital or control of the franchisor or its associate, in the franchise system, or a prescribed change, that would reasonably be expected to have a significant adverse effect on the value or price of the franchise or on the decision to acquire it, and it includes a decision to implement such a change. A franchisee’s rescission right in Ontario covers a franchisor’s failure to provide a disclosure document or a statement of material change within the time section 5 requires, so ask whether any such statement has been issued since the document you received.

Step three: have it reviewed before you negotiate

BDC says that anyone buying a business needs trusted legal and financial advisors to call on. For a franchise, that means a lawyer who reads the disclosure document and the franchise agreement against your province’s Act, and an accountant who looks at the financial information in it and at your own numbers. If the document is missing something you expect, ask for it in writing. Our guide to what to check in the franchise agreement covers the contract itself.

Step four: line up the money before you sign

BDC advises meeting potential lenders and investors before approaching a business, which it says will help you avoid negotiating a deal you cannot finance, and being clear as negotiations start about how much capital you can put toward the purchase, how much equity other investing partners can contribute and what terms your bank can offer. Ask the franchisor whether it has relationships with lenders, but treat any lender as your own choice and compare its terms with others. See can a franchise purchase be financed for how that works.

Step five: sign, and keep your remedies in view

Ontario’s Act gives a franchisee the right to rescind without penalty or obligation no later than 60 days after receiving the disclosure document if it or a statement of material change was late or the document did not meet the Act’s requirements, and no later than two years after entering the agreement if the franchisor never provided the document. British Columbia’s Act includes a 60-day rescission right in the circumstances set out in its section 6. These rights depend on the facts, so do not plan around them. Plan to sign only once the document, the agreement and the funding all look right to you and your advisers.

• Confirm the governing province and any claimed exemption before paying anything
• Diary the date the disclosure document was received and the earliest date you can sign or pay
• Get legal and accounting review of the document and the agreement before negotiating
• Settle your capital, partners’ equity and lender terms before you commit to a price
• Keep a written record of questions asked, answers given and any gaps in the document