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Franchising in BC

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We often get inquiries from business owners about how to setup a franchise in BC.

The short answer is that you need to comply with BC’s Franchises Act (and its Regulation) (together, the “Act”), which essentially means satisfying the disclosure obligations by preparing and providing a Franchise Disclosure Document (the “FDD”) to your prospective and existing franchisees whenever you are required to do so under the Act.

Franchising a business is a long-term commitment, and it is definitely costly. So before making that commitment, you should think twice or thrice about it.

For example, here are some preliminary questions that you can ask yourself:

  • Do you have a business plan (short-term plan vs. long-term plan)?
  • What are your strengths and weaknesses?
  • Who are your business partners? Do they have the skillsets that you lack?
  • Can your business model be replicated without compromising the goods and services that your business provides?
  • Who is your target market?
  • Do you have enough capital to support your business in the event you do not get enough cashflow at the early stage of franchising?
  • Have you taken steps to protect your brand (such as trademark registrations)?
  • Have you created, or are you prepared to create sufficiently detailed training manuals and operational procedures to ensure your business model can be accurately reproduced?

If your business is a “franchise” (which is specifically defined under the Act), then you are regulated by the Act. The Act provides that a prospective franchisee cannot sign the franchisee agreement with the franchisor unless the prospective franchisee receives an FDD from the franchisor at least 14 days prior to prospective franchisee signing the franchise agreement; the prospective franchisee cannot sign the franchise agreement during the 14-day waiting period. The FDD must include all of the information that the franchisor is required to disclose under the Act, which currently has at least 26 items (we would call this the “prescribed information” under the Act); the franchisor must also include in the FDD all of the “material facts” about the franchisor and its franchise business.  

In BC, there is no regulatory agency that administers, oversees, or enforces the Act, as opposed to regulatory agencies such as the BC Securities Commission over securities and capital investments, or the BC Financial Services Authority over property developments. However, if the franchisor fails to provide the FDD, fails to fully disclose the “prescribed information”, fails to fully disclose all “material facts”, or if the franchisor provided the FDD but not within the required timeline under the Act, then, subject to certain conditions and exemptions, the franchisee has the statutory right to rescind the franchise agreement as if the franchise relationship never existed in the first place. Consequently, if the franchisee is successful on their rescission claims in court, the franchisee would be entitled to receive monetary damages from the franchisor such that the franchisee would be put back into the same financial position had they not become a franchisee of the franchise.

As you can imagine, if the franchisee is successful in court, the monetary damages can easily go up to six figures, let alone the time, cost, and grief of going to court. Yet, loss of money is one thing, loss of reputation is another, and in reality, the latter is the one that hurts the most as that usually translates to loss of confidence by the public, loss of prospective customers, franchisees, and future opportunities. In other words, your brand is “tainted” and you, as the franchisor, must also disclose this fact in any of your future FDDs. No one likes to air their dirty laundry in public.

If you are interested in franchising your business in BC or is thinking about becoming a franchisee in BC, then feel free to contact Grace Kung at Bell Alliance. We are here to help!

About the Author

I help franchisors and franchisees with navigating the complex landscape of franchising law, people with buying, selling, and refinancing residential real estate, and individuals and small businesses with their corporate and commercial legal needs.

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