In Canada, the five provinces (Alberta, Manitoba, New Brunswick,
Ontario and PEI) with franchise legislation (and soon to be six
with the addition of British Columbia) require that franchisors
disclose specified financial statements from the previous fiscal
year in their franchise disclosure document (FDD). Normally,
failure to provide the correct financial statement in the FDD
provides franchisees with the statutory right to rescind their
franchise agreement within two years of entering the agreement.
However, all of the Canadian franchise statutes have an exemption
that allows large, well established franchisors to avoid disclosing
financial statements in their FDD, if certain requirements are met.
The requirements for the application of the exemption vary from
province to province.
Recently, the Government of Alberta launched a consultation
survey to solicit input from stakeholders in the franchise industry
regarding Alberta's Franchises Act Exemption Regulation. The
survey focused on two key issues: if large franchisors should
continue to be exempt from having to disclose financial statements
to prospective franchisees; and if so, if the existing monetary
threshold triggering the exemption is appropriate.
The current exemption for disclosing financial statements in
Alberta applies if both of the following requirements are met:
(a) The franchisor has a minimum net
worth of $5 million, or;
(b) The franchisor is controlled by a corporation with a minimum
net worth of $5 million and the franchisor has a minimum net worth
of $1 million; and
The franchisor has a minimum of 25
franchisees in Canada conducting business continuously for a
minimum 5 year period prior to the date of disclosure, and has
conducted business that is the subject of the franchise
continuously for 5 years or more.
The survey also solicited feedback on whether Alberta, as a
precondition to the financial statement exemption, should require a
franchisor to be free from any judgment, order or award made in
Canada for fraud, unfair or deceptive practices, in the five years
immediately preceding the date of the disclosure document. Alberta
is currently the only province with franchise legislation that does
not have this precondition to the financial statement exemption. As
a result, Alberta is viewed as having less onerous requirements for
the exemption, although, it is worth noting that New Brunswick and
PEI have lower monetary thresholds ($2 million) that trigger the
Cassels Brock is following the developments on this front and
will provide an update if legislative changes are proposed.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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