What is Franchising?
Franchising is an arrangement where one party (the franchisor) grants another party (the franchisee) the right to use its trademark or trade name as well as certain business systems and processes, to produce and market a good or service according to certain specifications. The franchisee usually pays a one-time franchise fee plus a percentage of sales revenue as royalty, and in return, gains immediate name recognition, has access to tried and tested products, utilizes a standard building design and décor, has access to detailed techniques in running and promoting the franchised business, training of employees, and ongoing assistance and advice form the franchisor.
Frequently Asked Questions
Independent Legal Advice (“ILA”) refers to legal advice given by a lawyer who is not involved in the transaction with the client. ILA is usually required by lenders and other sophisticated parties who want to ensure that their clients are fully informed of the content and consequences of a transaction. ILA should be obtained by any person who is self represented and who is involved in a transaction where all, or some, of the parties are represented by the same lawyer.
Independent Legal Advice must be obtained as early as possible, even before any formal legal steps are started.
The first thing to do is to obtain as much information about the franchisor and the franchise opportunity as possible. Franchisors must disclose in most provinces and provide disclosure documents for information purposes in the remaining provinces. Obtain this disclosure document from the franchisor.
When you are in possession of all the information, which should include a franchise agreement, see your lawyer and have your accountant verify the franchisor’s figures and calculations.
Make a decision only when you have been advised by your professional team, and do not pay the franchisor any money until you are 100% satisfied that the opportunity is a good fit for what you want to do.
The golden rule when buying a franchise is: If you are not 100% at ease with the franchisor and the franchise opportunity; walk away.
The first step to take when you want to franchise your business is to discuss it with your lawyer and accountant. As part of this discussion, the following should be covered:
- Whether your business is franchisable?
- Is the business of the franchisor viable and feasible?
- Intellectual property right
- Structuring of the franchisor’s business
- Risk management
- Expansion of the business and roll-out models
- Recruitment and Selection process and manual
- Compliance with franchise acts
- Pre-opening processes, including training, and manual
- Day to day operations and Daily Operations Manual
- Legal and other documents required
- Franchise disclosure requirements and documents
This is not a comprehensive list but a guideline. Speak to our franchise lawyer to obtain more details.