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Franchising

Definitions:

There is no uniform definition of a franchise and most statutory definitions are rather broad. In Ontario, a business is considered a franchise if:

  1. the business is required to make a payment or continuing payments to the franchisor (whether direct or indirect) in the course of operating the business or as a condition of acquiring the franchise or commencing operations; AND
  2. EITHER:
  1. the franchisee sells or distributes goods or services that are substantially associated with the franchisor’s trade-mark or advertising; and
  2. the franchisor exercises significant control over, or offers significant assistance in, the franchisee’s method of operation;

    OR

  3. the franchisee has the representational or distribution rights to sell or distribute goods or services supplied by the franchisor or a supplier designated by the franchisor; and
  4. the franchisor provides location assistance, including securing retail outlets, accounts or sales displays for the goods or services to be sold or distributed by the franchisee.

Thus, ANY business arrangement (ie. a distribution agreement or a trademark license) may be considered a franchise agreement at law. The failure to identify a franchise agreement as such may inadvertently cause parties to violate the sometimes onerous obligations imposed on franchisors under the law, especially disclosure obligations.

Caution is therefore recommended when negotiating and drafting any agreement that might be considered a franchise agreement, especially where the agreement may have effect in several provinces of Canada or in other countries such as the United States where there is often specific legislation governing franchises.

Available services:

  1. Prepare, review and negotiate franchise, dealer and distributor agreements.
  2. Prepare and revise disclosure packages.
  3. Advise clients respecting enforcement and termination issues arising under franchise, dealer and distributor agreements.
  4. Represent parties in litigation concerning franchise disputes.
  5. Advise clients and take steps to protect the intellectual property, including the trademarks, patents, copyrights and trade secrets, of the franchise as outlined above.

Useful Information to Provide Legal Counsel:

  1. Copies of any related letter of intent, memorandum of understanding, term sheet or discussion sheet.
  2. Copies of any disclosure packages previously used and/or copies of “draft” disclosure packages prepared for future use.
  3. Copies of any franchise agreements previously used.
  4. Copies of financial statements for franchisor for the previous 3 years.
  5. Particulars as to any intellectual property licensed by franchisor to franchisees, including trademarks, domain names, telephone numbers, copyright (ie. marketing materials, order forms, etc.), trade secrets, confidential information, patents and industrial designs.
  6. Copies of related franchise agreement(s) executed by parties involved in any dispute as well as disclosure package, if any.

The content of this page is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

 

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