Some franchisors make the mistake of assuming that once their
first franchise disclosure document is drafted and delivered to
prospective franchisees, the work ends there. However, a
disclosure document (which is required to be provided to
franchisees in Ontario, Alberta, New Brunswick, PEI and, soon,
Manitoba) is a living, breathing document which must be updated
constantly to evolve with changes to the franchise system.
Franchisors need to be sure that they are well-advised with
respect to what types of changes may trigger updates or revisions
to their standard form of disclosure document. Certainly,
information such as litigation, lists of franchisees, lists of
franchisee closures and financial statements will require frequent
supervision and revisions on a per-disclosure basis. Beyond
those, there exists a statutory duty to disclose any "material
fact" to a prospect, meaning any information about the
franchisor or the franchise system that might impact on
someone's decision to acquire the franchise.
Certain system changes may seem insignificant or minor to a
franchisor, but, if not updated properly, they could result in a
deficient disclosure document. If you have recently initiated
vehicle wrapping for your business or have new staffing
requirements, for example, these matters must be disclosed as a
cost which the franchisee will be required to incur.
As a result, it is generally good practice for franchisors to
review their disclosure documents with their legal counsel once per
year to ensure that all relevant changes which have occurred over
the past year are properly disclosed and described. In
various U.S. states, it is a legal requirement to file updated
disclosure documents with government regulators. However,
without such mandated monitoring of a disclosure document in
Canada, franchisors must not overlook the importance of an annual
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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