The Legal Considerations of Owning a Franchise
What The Law Says About Running a Franchise in Ontario
Many prospective entrepreneurs choose to invest in franchises because they typically have lower start-up costs than starting a business from scratch. Plus, you get to utilize the franchise’s name, branding, systems, and more while still reaping the benefits of being a business owner. However, before entering into any franchise agreement, it’s important for prospective franchise operators to do their homework and understand what legal obligations operating a franchise entails.
In this article, we will provide an overview of Franchise Law in Ontario along with the legal obligations you and your franchisor must fulfil.
What Does it Mean to be a Franchise Operator?
As a franchise operator, your role will be the same as any other business owner, with a few differences. Your main responsibilities will be:
- Setting up the business
- Hiring your team
- Managing and overseeing the day-to-day operations
- Managing the finances of the business
- Managing the business’ marketing
The main difference between operating a franchise and running a business you started from scratch is that you must follow a certain set of obligations outlined in your franchise agreement. You will also receive support and guidance from the franchisor when it comes to:
- Training staff
- Using the franchisor’s systems
- And more
This support is typically offered on an ongoing basis and franchisees will have a dedicated point of contact they can reach out to for support.
Do I Need a Lawyer to Start a Franchise?
Hiring a franchise lawyer is absolutely necessary when starting a franchise. A franchise operator will review any contracts and legal documents related to starting your franchise. This helps to ensure you are protected and are not entering into an agreement that is not in your best interest.
A franchise lawyer will also provide guidance and inform you of your rights and obligations under the franchise agreement and will negotiate with your franchisor when needed.
What the Law Says About Operating a Franchise
Did you know that Ontario was the second Canadian province to enact franchise law back in 2001? More than 20 years later, franchise law is in force in six Canadian provinces – Alberta, British Columbia, Manitoba, New Brunswick, Ontario and Prince Edward Island. While franchise laws are slightly different in each province, here is what the law says about franchises in Ontario:
In Ontario, franchisors must provide any prospective franchise operators with a disclosure document. The disclosure agreement must be handed over at least 14 days before the franchise agreement (or any other agreement relating to the franchise) is signed and any money is paid by the franchise operator to the franchisor.
A disclosure document must contain the franchisor’s financial statements along with any other important information about the business that would impact the value of the franchise and the franchise operator’s decision to invest in the franchise. Ontario law also states that all disclosure documents must be signed, dated, and certified.
If the franchisor’s disclosure does not comply with Ontario’s legal requirements, the franchisee can terminate the franchise agreement with no penalty.
Ontario franchise legislation requires the franchisor and franchisee to enter into a franchise agreement and commit to a duty of fair dealing when it comes to entering into and enforcing the agreement.
This means that when enforcing the franchise agreement, the franchisor must consider the interests of the franchisee without malice or ulterior purpose, while also not sacrificing the franchisor’s own interests.
Additional Legal Considerations When Starting a Franchise
Along with following the law, there are other legal considerations to make note of. We go over a few of them below.
Your Franchise Agreement Must Be Signed and Reviewed by a Franchise Lawyer
As previously mentioned, it’s crucial that you work with an experienced lawyer for many different reasons. One of the biggest benefits of working with a franchise lawyer is that they have the legal knowledge needed to understand and interpret your franchise agreement and ensure that it complies with provincial legislation.
They will also be able to help you understand what the franchisor’s obligations will be so you can feel empowered to request support if the franchisor is not meeting its obligations.
Do You Have Exclusivity Rights?
Exclusivity rights mean that your franchise will have exclusivity when it comes to operating a franchise in a particular area. Exclusivity rights are important because it means you won’t have to compete with multiple other businesses under the same franchise in your neighbourhood. Your franchise lawyer can help you determine whether your franchise agreement offers this and negotiate on your behalf if it doesn’t.
What Rights and Obligations Do You Have Under Your Franchise Agreement?
When reviewing your franchise agreement, you’ll also need to carefully consider what your obligations will be as the franchisor.
This typically includes:
- Paying fees to the franchisor
- Maintaining the goodwill and reputation of the franchise
- Marketing the business while following branding and marketing guidelines
- Using the franchisor’s systems
- Maintaining communication with the franchisor
If you are unsatisfied with any of your obligations outlined in the franchise agreement, your franchise lawyer can help you negotiate with the franchisor.
Why You Should Franchise With Gorilla Bins
Gorilla Bins is Ontario’s leading waste management business and the fastest-growing franchise of 2022, with several locations across the Greater Toronto Area. We offer extensive training, coaching, support, and marketing to help you succeed with your franchise and will make sure your interests as a franchise are protected.