Taking Your Franchise System to the United States

1. Introduction Franchising is a dynamic and rapidly growing industry, here in Canada as well as internationally. That said, it will come as no surprise that American franchisors in particular, have been quite successful in recent years. Statistics show that retail sales from franchise outlets in the US comprise over forty percent (40%) of all retail sales in the country, bringing in nearly $850 billion a year for their owners.

Canadian franchisors are increasingly realizing the economic benefits to be gained by expanding their franchises south of the border. Canadian chains such as Molly Maid, Magicuts, Uniglobe Travel, Manchu Wok, Speedy Muffler King and mostly recently Tim Hortons have all acquired successful outlets in the US. Other well-known Canadian franchises are following suit.

This article is intended to provide a primer on the advantages and disadvantages as well as the complexities of moving your franchise into the United States. Whether you decide to expand or not will ultimately be up to you, but if after reading this article you are seriously contemplating a move, we would be happy to assist and guide you from a legal perspective.

2. Why move to the US?

The first question you should be asking yourself is “Why move at all?”. Franchise owners such as yourself have diverse reasons for wanting to expand internationally. There are no right or wrong reasons to make the move, only right timing. Smart franchisors will only seriously entertain international prospects after establishing a strong and profitable franchise base at home and intensively researching and planning for an expansion. Maybe most importantly, smart franchisors and their executive teams will be committed to making their business work on an international scale.

The American market is particularly appealing to Canadian franchisors for many reasons, the obvious one of which is its sheer size. Canadian franchisors have come to recognize and appreciate that Americans have a deep-rooted familiarity with franchising, have high disposable income and enthusiastically embrace new products. The US also offers the advantages of close physical proximity, easy market accessibility and little or no language and cultural barriers.

Like with any market, however, there are drawbacks to franchising in the US. Because of the regulatory environment, the size and the diversity of the market, moving to the US can be quite costly. State registration fees alone cost approximately $15 000 (Canadian funds), while the preparation of disclosure documents and franchise agreements can easily come to $30 000 (Canadian funds). Prospective franchisors must also keep in mind that the American market is extremely competitive, considerably more so than its Canadian counterpart.

With the right product(s) and/or service(s), right people and right system in place, however, Canadian franchisors such as you may thrive in this profit-driven environment. In fact, not only is a successful move likely to boost your business on the whole, it may boost your Canadian operations specifically. Prospective franchisees everywhere are looking to invest in a growing company with its eye on the global arena.

3. What you Need to Know (from a legal perspective).

3.1 What is a Franchise?

Although the definition of a franchise varies by jurisdiction, as a general rule, a business will be considered a franchise and be subject to pre-sale registration and disclosure obligations if it meets three criteria:

The franchisee’s business is substantially associated with the franchisor’s trademark.

The franchisee is required to operate his business following a marketing plan prescribed in substantial part by the franchisor.

The franchisee is obligated to pay money to the franchisor or its affiliates for the right to engage in the business. Almost any monies paid to the franchisor or its affiliates can satisfy this element, except for the purchase of inventory at bone fide wholesale prices.

A number of jurisdictions exclude from the registration and disclosure requirements certain business relationships that technically meet the definition of a franchise. Examples of excluded relationships are general partnerships, employer-employee relationships and fractional franchises (where the franchisee has experience in the franchised business and the franchised business will account for less than 20% of the franchisee’s sales).

A number of states also permit certain franchisors to sell franchises without registering the Offering Circular in that state, although the franchisor must still provide disclosure to a prospective franchisee. The most typical registration exemption is for sales of franchises by a franchisor whose net worth exceeds a certain level (generally $5 million) and who is experienced in the franchised business.

Since the definition of a “franchise” and the applicable exclusions and exemptions vary, a business relationship may be considered a franchise in some jurisdictions, but not in other jurisdictions.

In the US, there are franchise laws at both the state and federal levels regulating the manner in which franchises are offered and sold and prohibiting franchisors from engaging in certain inappropriate conduct when dealing with their franchisees. There are also a number of other laws that may apply to franchising. It is critical that you understand the legal implications of franchising in the US before signing any franchise agreement(s).

3.2 Franchise Laws 3.2.1 State Franchise Registration and Disclosure Laws Currently, fifteen states regulate the offer and sale of franchises: California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Oregon, Rhode Island, South Dakota, Virginia, Washington and Wisconsin. Most state laws define a franchise as an agreement between two or more persons by which a franchisee is granted the right to offer, sell or distribute goods and/or services under the franchisor’s marketing plan or system; the operation of the franchisee’s business is substantially associated with the franchisor’s trademark(s); and the franchisee is required to pay a franchise fee of $500 or more. Some states provide exemptions for certain franchise arrangements including “large franchises” and sales to existing franchisees.

All fifteen states require pre-sale disclosure to prospective franchisees. Pursuant to the New Uniform Franchise Offering Circular Guidelines (“NUFOC”), you are required to provide comprehensive disclosure regarding: yourself, your predecessors, officers, directors and salesmen; the franchise being offered; the terms of the franchise relationship; projections of actual or average results of operation of franchised and/or franchisor-owned outlets; and their financial statements or those of their parent.

All fifteen franchise law states but Oregon also require some form of pre-sale franchise registration or notification with a state administrator. Registration may be denied or suspended if you fail to comply with the law; fail to meet the conditions of registration required by statute; have inadequate financial resources; employ personnel with unacceptable backgrounds (that is, with a criminal or administrative litigation history); offer a franchise with fraudulent or deceptive elements; or offer a franchise with unfair or inequitable terms.

As a prospective franchisor in one of these states, it is important to note that disregard of these requirements can result in civil liability and the imposition of severe criminal penalties.

3.2.2 Federal Franchise Disclosure Laws The Federal Trade Commission’s (“FTC”) trade regulation rule also requires pre-sale disclosure of certain relevant information to prospective franchisees. Unlike many states, however, the FTC does not require pre-sale registration of franchise agreement(s). It should be noted that the FTC rule does not pre-empt state regulation, except to the extent that such regulation is inconsistent with the provisions of the rule.

The definition of a “franchise” under the FTC rule is similar to that under state franchise laws, except that it also covers “business opportunity ventures”. Franchises which fall into one of the following categories are exempt from all compliance regulations under the FTC rule: fractional franchises; leased departments; minimal investments; and oral agreements.

Penalties for disregarding the FTC rule can also be quite severe. The rule may be enforced either in an administrative proceeding, leading to the issuance of a cease and desist order and civil penalties of up to $10,000 per violation, or in an action for an injunction and damages before a federal district court. There is no recognized private cause of action under the FTC rule, however. As a result, many states have enacted “Baby” FTC Acts to allow parties to bring a private action when harmed by an FTC violation.

3.2.3 State Franchise Relationship Laws The following states govern the franchise relationship, in addition to the offer and sale of franchises: Arkansas, California, Connecticut, Delaware, Hawaii, Illinois, Indiana, Iowa, Michigan, Minnesota, Mississippi, Missouri, Nebraska, New Jersey, Virginia, Washington, Washington D.C., and Wisconsin. The definition of a “franchise” as per these franchise relationship laws is often broader than the definitions discussed above.

Franchise relationship laws address primarily the termination and non-renewal of franchises. Many require the showing of good cause before you can terminate or refuse to renew a franchise. Other aspects of the franchise relationship regulated by certain states include: (i) prohibitions on the transfer or assignment of the franchise; (ii) discrimination by the franchisor against franchisees; (iii) failure of the franchisor to repurchase goods upon termination of the franchise; (iv) interference by franchisors with free association among franchisees; and (v) territorial encroachment.

3.3 Other Laws Governing Franchising 3.3.1 State Business Opportunity Laws Franchise agreements aimed at unsophisticated consumer dealers or distributors and characterized by assurances of an absence of risk are covered by certain business opportunity laws. At present, 24 states have business opportunity laws: Alabama, California, Connecticut, Florida, Georgia, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Michigan, Minnesota, Nebraska, New Hampshire, North Carolina, Ohio, Oklahoma, South Carolina, South Dakota, Texas, Utah, Virginia and Washington.

You will likely be able to avoid these laws because your franchise is either: (i) covered by the franchise registration law of the same state; (ii) excluded from the “business opportunity” definition because it offers a marketing plan in conjunction with a registered trademark; or (iii) exempt due to compliance with the FTC rule.

Franchisors caught by these laws are required to furnish specified disclosure prior to the sale of a business opportunity. Some business opportunity laws may also require a seller to obtain a surety bond or establish a trust account. Many also contain provisions rendering it unlawful to misrepresent certain information relating to the franchise or business opportunity and to engage in any false, fraudulent, misleading or deceptive acts. A number of practices relating specifically to the sale of goods are also prohibited by these laws.

Be aware that failure to comply with business opportunity laws can result in litigation by a purchaser of a business opportunity for damages and rescission.

3.3.2 Federal Intellectual Property Laws However distinctive your trademark(s) in Canada, you should not assume that they will necessarily confer any trademark rights pursuant to the Trademark Law Revision Act in the US. To ensure effective protection of the your trademark(s) in the US, a thorough investigation of all existing uses of the same or confusingly similar trademark(s) must be undertaken, including a registrability search. Any prior uses of the same or confusingly similar trademark(s) should be dealt with at the earliest possible stage. This will usually require buy-outs, acquisitions or licensing arrangements of the prior marks in order to ensure that you have secured rights to your mark(s).

After having made the necessary changes, you will be required to register your trademark(s) with the appropriate authorities. Keep in mind that registration can take anywhere from twelve to eighteen months, even if there are only minimal problems.

After the registration process is complete, you must ensure that the trademark(s) are properly protected, and maintained by your franchisees. As a franchise owner, you are responsible for ensuring the quality of the products or services associated with the trademark. This may be a challenge if your franchise are located in more than one country. Development of a franchise agreement which clearly stipulates the obligations of franchisees with respect to trademarks is vital. Strategies should also be developed to monitor competitors and other third parties, in addition to franchisees, in order to detect and prevent improper usage or potential infringement of the trademark.

3.3.3 State and Federal Tax and Corporate Laws It is also critical that you consider the tax consequences on income earned in Canada as well as in the US. As a Canadian franchisor you will be taxed by the Canadian government on world wide income, wherever derived. You will, however, be credited for taxes paid in the target country against taxes otherwise payable in Canada.

Given existing tax laws in the US, you may want to consider establishing a domestic US corporation, rather than a US branch operation. Taxes on US corporations are payable on income earned by the franchisor in the US. Although many franchisors think that US corporate tax rates are significantly lower than those in Canada, that is not always the case. US corporate tax rates can go as high as forty percent (40%) and companies doing business there might also have to pay one of several state taxes. In general, US tax authorities also require a lot more information about your business activities than Canadian authorities and the financial penalties associated with non-compliance are much more severe in the US than in Canada.

3.3.4 State and Federal Antitrust and Trade Regulation Laws State and federal antitrust and trade regulation laws seek to eliminate unfair methods of competition, unfair or deceptive acts or practices affecting trade and unreasonable restraints of trade. Many aspects of a franchise system’s day-to-day operations raise antitrust and trade regulation law issues. Antitrust and trade regulation law concerns arise most commonly in the following circumstances: exclusive franchises and refusals to deal; territorial confinement and customer restrictions; horizontal restraints/dual distribution; resale price control and price management; control of product purchases and sales; and tying arrangements.

3.3.5 State and Federal Securities Laws Ordinarily the sale of a franchise does not constitute the sale of a security. Whether a specific franchise constitutes a security (in the form of an investment contract or a profit-sharing arrangement) for the purposes of state and federal securities regulations, however, is determined by the legal and factual context of the situation. If a franchise is deemed to be a security pursuant to the Securities Act, its offer and sale will be subject to security registration and disclosure requirements, broker/dealer regulation and anti-fraud provisions. It is important to note that civil and criminal remedies can be imposed for breaching said requirements.

3.3.6 State Industry Laws Some franchise agreements are also subject to regulation because of the specific industry involved. Approximately thirty-eight states regulate the distribution of farm implements or machinery. Approximately thirty states regulate beer, wine, malt beverages and liquor distributorships. Others regulate the distribution of utility and industrial equipment, construction equipment, motorcycles, mobile homes and office machines.

4. Structuring and Preparing your Franchise Agreement

International expansion can be achieved through various franchising structures, the most common of which are unit franchising, area development franchising and master franchising. Whatever structure works for one company in one country will not necessarily work for another in another country. It is, therefore, imperative that you give careful consideration to the advantages and disadvantages of each relationship before structuring and preparing your franchise agreement(s). There are also various alternative structures that allow franchisors to develop franchise outlets in a foreign country.

4.1 Unit Franchising Pursuant to a single-unit franchising agreement, the franchisor grants a franchisee the right to develop and operate one franchise unit in exchange for franchise fees and royalties. The unit franchisee obtains the right to operate either from a specific location or within a defined territory. The franchisor controls all financial and management aspects of the unit franchising relationship.

4.2 Area Development Franchising In an area development franchise, the franchisor grants a franchisee a territory within which the franchisee is required to establish an agreed-upon number of franchise outlets during a specified period of time. The franchisor charges development right fees and, when the franchise is highly desirable, may also charge a franchise fee for each unit. Area development franchising is typically accomplished through the use of an area development agreement.

4.3 Master Franchising The master franchise agreement (also known as a subfranchise agreement) is conceptually different from the area development agreement in only one material respect: master franchisees are encouraged to recruit third parties who will execute unit franchise agreements. Master franchise agreements grant master franchisees the right and duty to sell franchises within a prescribed territory, using the master franchisor’s system and proprietary marks. To the extent that master franchisees develop units, an individual franchise agreement for each unit must be executed.

Of the various methods of expansion, master franchising is used most frequently. The advantages of a master franchise relationship include rapid market penetration (by requiring less capital from the master franchisee than an area development agreement from the developer), the delegation of obligations the franchisor would otherwise be required to fulfill to each franchisee in its network and the ability to collect fees from the franchisee without the same level of effort required in a single-unit relationship.

4.4 Alternatives to Traditional Franchising Before you decide on a franchising structure, you should consider alternative business structures that may be more suitable for your business. These include (but are not limited to) the creation of affiliated corporations, the internal development of outlets, distributorships and dealerships, licensing, joint ventures and partnerships. Based on your desire for involvement, your timeline for expansion and a number of other factors, we can help you decide which structure is best suited to your business.

5. What You Need to Do.

5.1 Determine your Objectives & Capabilities (see Appendix A). Before launching an international program, you need to ensure that you have a secure domestic foundation. Make sure that you have adequate capital, resources, personnel, support systems and training programs in place to assist franchisees and/or master franchisees in the US. Above all, be sure that you are able and willing to devote the time and resources required to build and maintain your franchise in the US.

5.2 Research your Target Market. You’d be surprised at the differences that exist in consumer taste, culture, norms, trends and habits from one region to the next. Market studies and research should be conducted to measure market demand and competition for your company’s product(s) and/or service(s). By systematically collecting, analyzing, and interpreting market data, you can predict whether your franchise will be successful in a particular location. It will also help you to determine whether any system and/or product modifications, adaptations or improvements will be required in the foreign market.

After you have selected your target market(s), you should develop a market penetration strategy. You need to determine the timing for entry into each new market as well as the critical mass requirements of those markets. Failure to establish a rational expansion strategy wastes valuable time and resources that could be utilized by domestic and more successful foreign operations.

Apart from undertaking a preliminary market analysis, novel franchise concepts often benefit from test marketing. If you decide to test-market your product(s) and/or service(s), your test period agreement should establish a timetable for determining whether and how your franchise concept can be successfully implemented in the US.

5.3 Find the Right Partner(s). The ultimate success of your international program will depend on your selection of partner(s). Whether you are involved in single-unit or multi-unit franchising, it is imperative that the objectives and operational styles of your master franchisees or franchisees be compatible with yours. Before signing any franchisees and/or master franchisees, you should obtain background information about their reputation and credit history. It is not enough to hear from prospective franchisees and master franchisees that they have the resources to develop your franchise, you need the evidence to prove it. It will be an added advantage to find someone who is knowledgeable about local customs, laws and business methods.

Take your time in selecting the right partner(s). Careful negotiations and contract preparation will provide you with the protection you will need in entering a new market.

6. How We Can Help.

6.1 Franchising Services Siskinds represents franchisors on matters for which they require expert legal services. We can:

Determine whether your business concept is a franchise. If it is a franchise, but you would prefer to avoid the registration/disclosure requirements, we can help you modify the business concept to avoid coverage by the franchise laws, if possible, or to take advantage of applicable exclusions.

Work with you to develop franchise and related agreements that will permit the growth of your concept while allowing you to maintain control.

Seek federal registrations for your trademarks.

Prepare the Uniform Franchise Offering Circular and provide guidance on how to use it.

Prepare and file all franchise registrations, amendments, and renewals, or seek exemptions from registration, in all applicable states.

Assist you in taking your franchise concept abroad.

Help you understand your contract rights and obligations and statutory restrictions that apply to the franchise relationship.

Represent you in any proceedings brought by federal or state franchise regulators.

Guide you in terminating the relationship with a franchisee without violating statutory restrictions.

Represent you in litigation or arbitration proceedings with a franchisee.

6.2 Registering and Maintaining your Trademarks. It is important to realize that your domestic trademark does not automatically confer any trademark rights in foreign markets. In many cases, domestic trademarks must be modified or adapted for international use. Leave it to us to determine whether your domestic trademark(s) will require any modifications or adaptations for international use.

Next comes the registration process. Once the necessary changes are made, we can help you register your trademark(s) properly under the Trademark Law Revision Act. We can also assist you in filing an affidavit of continued use and in renewing your registration after the first ten year term has expired.

As the owner of a trademark, you will also be responsible for protecting and ensuring the quality of the product(s) and/or service(s) associated with your trademark(s). It is therefore imperative that you set forth the specific obligations of your master franchisees and franchisees with respect to trademarks in your franchise agreement(s) and that you actively police the use of the trademark(s) to ensure that a certain level of quality is maintained. We can advise you with respect to maintaining and protecting your trademark rights in the US.

6.3 Establishing a Corporation. Because of existing American tax laws, you may choose to establish a domestic US corporation, rather than a US branch operation of your franchise. US corporations are established in accordance with state laws of incorporation. There are many similarities in state corporate laws, however, some are more flexible than others. Aside from preparing initial incorporation documents, you will be required to register your corporation and file an income tax return regardless of whether your American outlets have any taxable income, on an annual basis. Some states also have audit requirements. We can assist you in preparing and filing the required incorporation documents.

6.4 Structuring and Preparing Franchising Documents. There are many unique and unforeseen challenges involved in structuring and preparing documents relevant to your international franchise agreement(s). Even a franchise system that has proven to be successful in the franchisor’s home country will generally require considerable modification and adjustment in order to succeed internationally.

International franchise agreement(s) can take a number of forms, the most common of which are unit franchising, area development franchising and master franchising. We can help you to determine which franchise structure is most suitable for your business.

As previously noted, both federal and many state laws require the franchisor to provide pre-sale disclosure to prospective franchisees. The franchisor must disclose information about itself, the business and the franchise agreement. Our franchise law specialists can assist you in preparing and structuring your disclosure documents and franchise agreement(s) to ensure that your arrangement complies not only with American franchise laws, but also with business opportunity laws, intellectual property laws, tax and corporate laws, antitrust and trade regulation laws, securities laws and industry laws, 6.5 Registering and Maintaining your Franchise Agreement(s). In addition to pre-sale disclosure, fourteen states require some form of pre-sale franchise registration. Registrations are renewable annually and must be amended if there is a material change in the information disclosed. Our franchise specialists can assist you in registering and in maintaining your franchise agreement(s).

6.6 Resolving Legal Issues that Arise After the Agreement(s) Is Signed. A myriad of legal issues concerning the franchise relationship may arise after the franchise agreement is signed. Because the American franchise system is more protective of franchisees’ rights than its Canadian counterpart, franchise law disputes arise much more frequently south of the border. The most common disputes between franchisors and franchisees revolve around: termination and non-renewal of franchise agreements, discrimination by the franchisor, interference by the franchisor and misrepresentations made by the franchisor. Third parties, such as customers, can also bring an action against the franchisor, the most common of which is an action for vicarious liability. Our highly trained team of franchise lawyers can help you to develop and implement procedures for resolving disputes brought by franchisees and customers alike.



Appendix A International Franchising Resources Checklist You know you want to expand on an international scale, but do you have the resources to do it?

People. . .

Management with Franchising Experience?

Management with International Business Experience?

Management with International Franchising Experience?

Technical Advisory Support in International Franchising?

Legal Advisory Support in International Franchising?

Money. . .

Capital to Support Your Own International Franchising Program?

Working Capital to Support Travel, Screening and Other Costs to Select, Set Up and Service Foreign Franchisees and/or Master Franchisees?

Foreign Investors?

Where are Foreign Investors Getting Their Financing?

Can Public Offerings be Excluded and/or Controlled?

Information. . .

References on Foreign Franchisees and/or Master Franchisees?

Marketing Information on Target Markets?

Supplier Networks Available?

Analysis of Legal and Foreign Investment Environments?

Cultural Awareness?

Personality. . .

Do You Have the Patience to Build an International Franchise Program?

Do You Have the Attitude to Build an International Franchise Program?

ie. Can You Tolerate Cultural Differences?

Can You Resist the Desire to Micromanage Foreign Operations?

Can You Accommodate the Foreign Franchisees’ and/or Master Franchisees’ Objectives?



Appendix B An Overview of the Required Disclosures The UFOC must include the following information:

Item 1- In this term, the franchisor must describe its business, its business experience and the franchise offered. The franchisor must also provide information about its predecessors and affiliates and their business experience. In addition, disclosures must be made of regulations specific to the franchisor’s industry.

Item 2- The franchisor must include, in this Item, biographical information covering the last five years for the directors, executive officers, general partners and trustees of the franchisor and other employees who will have management responsibility in connection with its franchisees.

Item 3- In this Item, the franchisor must disclose certain litigation filed by or against it, its predecessors, any affiliate that offers franchises under the franchisor’s principal trademark and the persons identified in Item 2.

Item 4- The franchisor must disclose, in this Item, any bankruptcy filings in the last 10 years involving the franchisor, or its affiliates, its predecessors and any person identified in Item2.

Item 5- In this Item, the franchisor must disclose any payments that the franchisor or its affiliates prior to opening.

Item 6- In this Item, the franchisor must disclose the other fees that the franchisee is required to pay to the franchisor or its affiliates, including recurring fees.

Item 7- In this Item, the franchisor must estimate the initial investment that the franchisee must make to open the franchised unit.

Item 8- If the franchisee is required to purchase or lease any goods or services from sources designated or approved by the franchisor or under the franchisor’s specifications, the franchisor must identify those goods and services in this Item. The franchisor must state whether, and if so precisely how, the franchisor or its affiliates will derive income form the franchisee’s purchases.

Item 9- In this Item, the franchisor must list the franchisee’s principal obligations under the franchise agreement and other related agreements.

Item 10- In this Item, the franchisor must describe any financing offered directly or indirectly to the franchisee by the franchisor or its affiliates and any payments received by the franchisor or its affiliates as a result of the placement of financing.

Item 11- This lengthy Item requires the franchisor to describe the services it is contractually obligated to provide to the franchisee. In addition, the franchisor must describe the process for selecting a location for the franchisee’s business; the typical length of time between contract signing and unit opening; the franchisor’s advertising programs; computer system requirements; and the franchisor’s training programs.

Item 12- In this Item, the franchisor must describe any exclusive territory granted the franchisee and whether the franchisor has established, or may establish, another distribution outlet for products or services under the same trademark. The franchisor also must disclose whether its affiliates have established, or may establish, other franchises or other distribution outlets for similar products or services under a different trademark.

Item 13- The franchisor must provide information, in this Item, about the principal trademarks and service marks to be licensed to the franchisee and limitations on the franchisee’s use of the marks.

Item 14- This Item requires the franchisor to disclose information regarding any patents, copyrights, confidential information or trade secrets relevant to the franchise.

Item 15- This Item requires the franchisor to disclose whether the franchisee must personally participate in the operation of the franchised business.

Item 16- The franchisor must disclose, in this Item, any restrictions on the goods or services offered by the franchisee, restrictions on the customers to whom the franchisee may sell goods or services, and whether the franchisor has the right to change the type of authorized goods and services offered by the franchisee.

Item 17- This Item requires the franchisor to present information (in tabular form) about the term of the franchise relationship, modification, termination, renewal, and transfer of the franchise, and dispute resolution.

Item 18- This Item requires the franchisor to disclose the compensation given or promised to a public figure for use of that person’s name or image in the franchise name or symbol or in endorsing or recommending the franchise to prospective franchisees, and the extent of the public figure’s involvement in the management or control of the franchisor.

Item 19- If a franchisor wants to provide any information to a franchisee about potential sales, expenses or profits, the franchisor must include that information in this Item.

Item 20- In this Item, the franchisor must identify the name, address and phone number of at least 100 current franchisees; the number of franchises it anticipates selling in the next year; the number of franchises in the last 3 fiscal years that have been transferred, cancelled, terminated, not renewed or reacquired by the franchisor; and the name, home address and phone number of every franchisee who voluntarily or involuntarily ceased to be a franchisee during the last year, or who has not communicated with the franchisor within 10 weeks of the application date, and provide information about the number of company units.

Item 21- This Item requires the franchisor to include audited balance sheets as of the end of its last 2 fiscal years and statements of operations, of stockholders’ equity and of cash flow for its last 3 fiscal years. If the most recent balance sheet and statement of operations are for a period ending more than 90 days prior to the effective date of the UFOC, unaudited financial statements for the franchisor may include the financial statements of an affiliated company that has absolutely and unconditionally guaranteed the obligations of the franchisor under the franchise agreement.

Item 22- This Item requires the franchisor to include samples of all contracts that a franchisee might sign.

Finally the UFOC includes an acknowledgement of receipt to be signed by the prospective franchise.

More information. For more information on franchising in Canada, the United States and internationally, please contact Peter Macrae Dillon, head of Siskinds Franchise Law Group. Peter is the author of the annotated Ontario Franchise Disclosure Act and the annotated Alberta Franchises Act and over 30 other publications on the subjects of franchising, licensing and distribution. He is licensed in Ontario and New York. Peter can be contacted at 800-816-9596 ext. 7818 or by email at peter.dillon@siskinds.com. Please visit our website at www.franchiselaw.ca The information contained in this note is for general reference only, and should not be relied upon as constituting legal advice.

peter macrae dillon Siskinds franchise franchisor franchising lawyer attorney Toronto Ontario Canada www.franchiselaw.ca



Taking Your Franchise System to the United States - To learn more about this author, visit Peter Macrae Dillon's Website.

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