U.S. franchisors face strict Canadian disclosure laws

Provincial rules provide a wrinkle for franchises looking to expand to Canada

Canada has been an attractive option for U.S. investors and businesses for years. Not only is it America’s largest trading partner, but the thousands of miles of mutual border, common cultures and shared languages make Canada a logical choice for international business relations (see “The Canada Report” in the November 2011 issue).

Canada also is a logical first step for U.S. franchisors looking to expand into the international marketplace. While the financial crisis put a damper on U.S. franchisors pushing into Canada in recent years, the relatively strong Canadian
economy has reinforced the neighbor to the north as an ideal target when looking to court prospective franchisees.

While there’s an overall consistency to different provinces’ legislation, there are some minor differences between the provincial laws. Bennett Jones Partner Murray Coleman says that the three provinces to most recently enact disclosure legislation have made some improvements upon Alberta and Ontario’s laws.

“For example,” he says, “in Ontario, there’s no opportunity for electronic delivery of a disclosure document. Today, people would expect that to be possible. In Prince Edward Island, New Brunswick and Manitoba, electronic delivery appears in their statutes.”

Counsel Considerations

While the Canadian franchise regime is similar to that of the U.S., it’s still important for U.S. franchisors to do their homework before heading for the border. In-house counsel should remember that Canada is a foreign country and that it would be wise to retain Canadian counsel to assist with both the preparation of disclosure documents and the overall development of the franchise in Canada.

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