Canadian Franchise 5#4

DiscLosure Document

disclosure documents are a summary of information on the franchisor, its executive and the franchise agreements. The document is provided to the prospective franchisee in order that they may make a more fully informed business decision. i n certain provinces in canada and throughout the states, franchisors are required by law to provide a disclosure document

to prospective franchisees. Other countries requiring disclosure documents include, but are not limited to Belgium, France, i taly, romania, spain, sweden, Brazil, china, Mexico, Malaysia and Korea. even if the disclosure document may not be legally required, many franchisors provide some form of a disclosure document in order to assist prospective franchisees with learning about the franchise opportunity.

i n the United states there are certain states, such as california, Wisconsin

and Minnesota, where the disclosure documents are filed and made available to the public through a government website. check in your prospective country to see if there is such a government site for filing disclosure documents. a lawyer specializing in franchising will be able to assist.

Franchisors have different application processes for perspective franchisees but will typically provide the disclosure document to you once you have been qualified as a potential franchisee and have

serious interest. i t is typically not a public document and is usually only available to potential franchisees. i n canada and the United states, it is required that the franchisor provide the disclosure document a minimum of 14 days prior to the prospective franchisee signing any franchise agreements or paying any funds. disclosure can be required to be as much as 30 days prior to signing the franchise agreement, as required in Mexico.

There will be occasions where a franchisor does not have a disclosure document. i f they are located outside of the required canadian provinces, they may refuse to give it or simply not have one because they are new. i n these instances, you will want to ensure you fully do your homework regarding the opportunity. Where a franchisor fails to provide proper disclosure within the jurisdictions where disclosure is legally required, you may have the ability to rescind the franchise agreement for up to two years from when the franchise was granted to you. You may be compensated for all losses you have incurred in acquiring, setting up and operating the franchise business.

The disclosure document must meet legislative requirements and disclose all material facts regarding the franchise opportunity and the franchisor’s history. There are required statements about risk and seeking legal and financial advice.

A typical table of contents of a disclosure document might read as follows:

• Corporate name of the franchisor

• Nature of the business

• Business experience of the directors and officers of the franchisor

• Previous convictions, civil actions, administrative proceedings, bankruptcies or liabilities of the franchisor, its directors, officers and associates

• Initial Investment required

• Other fees payable under the franchise agreement

• Estimate on working capital, annual operating costs

• Earning projections

• Training provided, with outline of initial training program

• Financing arrangements

• Assistance provided by the franchisor

• Franchisees’ obligations

• Marketing fund, use of marketing fund, past spending, projected spending

• Restrictions on what and to whom franchisees may sell

• Special licenses required

• Volume rebates and discount policies

• Obligations to participate in the actual operations of the franchised business

• Trademarks, patent and copyright information

• Term, renewal, termination and transfer of the franchise

• Policies regarding dispute resolution

“ The disclosure document is only a summary of important information. You should study the franchise agreement in detail as this is ultimately the document you will be signing.”

In addition, the disclosure will have the following attachments:

• List of existing franchisees with contact information

• List of terminated, not renewed or cancelled franchisees with last known contact information

• Financial statements of the franchisor

• Franchise agreement

• Table of contents of the operations manual

• Certificate of franchisor signed by an officer of the company stating that all

Wayne Maillet is a franchise management consultant and founder of the consulting company Franchise Specialists. Respected within franchise circles, he brings a realistic, practical understanding of business and franchising. This article is based on excerpts from his book, Franchising Demystified The book can be ordered through most book retailers or directly from the publisher at www.franchisingdemystified.com.