I am often asked “can I sell franchises?”. The short answer is “yes”. However, a potential franchisor needs to consider what is involved in franchising.
The franchisor needs to have a business model that has value and can be repeated by others. The franchisor also needs to prepare a franchise agreement and an operations manual. The franchisor maintains control over its brand and reputation by establishing procedures and standards and setting them out in an operations manual that must be followed by the franchisee. Preparing the operations manual can be a significant undertaking. The franchisor should also have taken steps to protect its intellectual property rights, including securing a trademark for its name.
Finally, the franchisor needs to consider the Franchises Act, which comes into force in British Columbia on February 1, 2017. Such legislation is already in place in Alberta, Manitoba, Ontario, New Brunswick and Prince Edward Island. The main consequence of franchising in a province with franchise legislation is that the franchisor is required to provide prescribed disclosure to the franchisee before entering into a franchise agreement. The franchisor is required to disclose all material facts pertaining to the franchise, which includes but is not limited to:
• financial statements of the franchisor,
• business information about the franchisor and its directors;
• lists of franchisees and former franchisees; and
• a summary of the franchisee’s costs and obligations.
Franchising can be profitable, but potential franchisors need to spend time and money to establish the franchise system and need to be willing to manage the system on an ongoing basis.
Andrew Brunton is a business and real estate lawyer at Pushor Mitchell LLP who acts for both franchisors and franchisees. You can reach Andrew at 250-869-1135 or [email protected]. For more information on our Franchising Law Team, please visit http://pushormitchell.com/service/franchising.
