The Regulation of Franchising in PEI -- Franchise Lawyer Canada
The Regulation of Franchising in PEI -- Franchise Lawyer Canada
PEI gave Royal Assent to its Franchises Act on June 7, 2005. It will not come into force until Regulations under the Act are brought into force. The Ministry responsible for the Regulations expects this to happen early in 2006.
For members of the CFA, the existence of provincial legislation does not change much: all members are required by virtue of their membership to comply with the CFA's mandatory disclosure policy, and provide their disclosure document to all prospects, regardless of whether the jurisdiction has a franchise disclosure law. Don't forget to include the CFA Code of Ethics in your disclosure document, and modify your Certificate of Disclosure.
The good news about PEI is that its Act and draft Regulation (available online at www.assembly.pe.ca/bills and http://www.gov.pe.ca/photos/original/oag_franchiseac.pdf respectively) is a significant improvement over the vague and overly-burdensome Ontario law. Examples of improvements in the PEI Act include the following:
• a "bona fide wholesale purchase" exemption, that clearly exempts a wide range of distributorships (similar to Alberta, and also present in the draft NB law);
• a "substantial compliance" provision, similar to Alberta's, that alleviates Ontario's harsh requirement for strict technical compliance;
• flexibility as to the means of delivery of the disclosure document. If the parties agree, the document may be delivered by email, CD, courier, or dogsled;
• use of a disclosure document prepared in accordance with the laws of another jurisdiction, and modified to contain information relevant to PEI. This would allow for use of an Ontario document, or a UFOC, with a PEI rider;
• the requirement that certain information be grouped together in the disclosure document is eliminated; and
• a much improved (if still flawed) provision relating to the use of financial projections.
PEI also maintains certain other "positives" from the Ontario Act, such as:
• the exemption from disclosure of financial statements for qualifying systems (same criteria as Ontario);
• use of review engagement financial statements; and
• acceptance of financial statements prepared in accordance with the audit or review standards that are at least equivalent to Canadian standards.
Unfortunately, some of the shortcomings of the Ontario law were carried over into PEI, including:
• the nefarious requirement to disclose "all material facts", which makes Canadian legislation perhaps the most onerous on the globe;
• personal liability for the individuals signing the document for misrepresentations or errors in the document, which again sets Canadian laws far apart from other jurisdictions and creates enormous risk for individuals who participate in franchising through limited liability corporations;
• lack of a clear right to utilize the financial statements of a parent corporation, consolidated with the subsidiary franchisor
• a requirement to disclose a breach of any law that "regulates business", which arguably includes any and every law;
• disclosure of all officers and directors of the franchisor, regardless of whether they have management responsibilities relating to the franchise; and
• lack of any time limit limiting the period for disclosure of past administrative and civil findings of liability.
Most importantly, while the many improvements in PEI are welcome, franchisors must be aware that the Act and Regulation contain some differences that should be addressed in their disclosure document. These include:
• Risk Warnings peculiar to PEI;
• disclosure of the franchisor's associates who will engage in business with the franchisee;
• any Statement of Material Change must be accompanied by a Certificate of the franchisor in the prescribed form;
• the exemption from disclosure of financial statements is not automatic: franchisors must make application to the Minister (as Ontario formerly required); and
• the Certificate of Disclosure is more comprehensive than the one required by Ontario.
As the checkerboard of Canadian franchise legislation fills up, it is imperative that franchisors pay close attention to ongoing compliance. The risks of non-compliance, which may include unlimited joint and several personal liability, require that you allocate adequate time and resources to this aspect of your business.
The Regulation of Franchising in PEI Franchise Lawyer Canada - To learn more about this author, visit Peter Macrae Dillon's Website.
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PEI REGULATES FRANCHISES
PEI gave Royal Assent to its Franchises Act on June 7, 2005. It will not come into force until Regulations under the Act are brought into force. The Ministry responsible for the Regulations expects this to happen early in 2006.
For members of the CFA, the existence of provincial legislation does not change much: all members are required by virtue of their membership to comply with the CFA's mandatory disclosure policy, and provide their disclosure document to all prospects, regardless of whether the jurisdiction has a franchise disclosure law. Don't forget to include the CFA Code of Ethics in your disclosure document, and modify your Certificate of Disclosure.
The good news about PEI is that its Act and draft Regulation (available online at www.assembly.pe.ca/bills and http://www.gov.pe.ca/photos/original/oag_franchiseac.pdf respectively) is a significant improvement over the vague and overly-burdensome Ontario law. Examples of improvements in the PEI Act include the following:
• a "bona fide wholesale purchase" exemption, that clearly exempts a wide range of distributorships (similar to Alberta, and also present in the draft NB law);
• a "substantial compliance" provision, similar to Alberta's, that alleviates Ontario's harsh requirement for strict technical compliance;
• flexibility as to the means of delivery of the disclosure document. If the parties agree, the document may be delivered by email, CD, courier, or dogsled;
• use of a disclosure document prepared in accordance with the laws of another jurisdiction, and modified to contain information relevant to PEI. This would allow for use of an Ontario document, or a UFOC, with a PEI rider;
• the requirement that certain information be grouped together in the disclosure document is eliminated; and
• a much improved (if still flawed) provision relating to the use of financial projections.
PEI also maintains certain other "positives" from the Ontario Act, such as:
• the exemption from disclosure of financial statements for qualifying systems (same criteria as Ontario);
• use of review engagement financial statements; and
• acceptance of financial statements prepared in accordance with the audit or review standards that are at least equivalent to Canadian standards.
Unfortunately, some of the shortcomings of the Ontario law were carried over into PEI, including:
• the nefarious requirement to disclose "all material facts", which makes Canadian legislation perhaps the most onerous on the globe;
• personal liability for the individuals signing the document for misrepresentations or errors in the document, which again sets Canadian laws far apart from other jurisdictions and creates enormous risk for individuals who participate in franchising through limited liability corporations;
• lack of a clear right to utilize the financial statements of a parent corporation, consolidated with the subsidiary franchisor
• a requirement to disclose a breach of any law that "regulates business", which arguably includes any and every law;
• disclosure of all officers and directors of the franchisor, regardless of whether they have management responsibilities relating to the franchise; and
• lack of any time limit limiting the period for disclosure of past administrative and civil findings of liability.
Most importantly, while the many improvements in PEI are welcome, franchisors must be aware that the Act and Regulation contain some differences that should be addressed in their disclosure document. These include:
• Risk Warnings peculiar to PEI;
• disclosure of the franchisor's associates who will engage in business with the franchisee;
• any Statement of Material Change must be accompanied by a Certificate of the franchisor in the prescribed form;
• the exemption from disclosure of financial statements is not automatic: franchisors must make application to the Minister (as Ontario formerly required); and
• the Certificate of Disclosure is more comprehensive than the one required by Ontario.
As the checkerboard of Canadian franchise legislation fills up, it is imperative that franchisors pay close attention to ongoing compliance. The risks of non-compliance, which may include unlimited joint and several personal liability, require that you allocate adequate time and resources to this aspect of your business.
The Regulation of Franchising in PEI Franchise Lawyer Canada - To learn more about this author, visit Peter Macrae Dillon's Website.
Like this article? Share it with your friends
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John PowerJohn Power, founder of Biltmore Franchise Consulting, has extensive experience developing and marketing franchises and business opportunities. He has been in and around franchising for over twenty years. From 1980 through 1990 he conceptualized, organized, and developed the American Video Association. He grew AVA to 2,000 national members, before selling the company it 1990. It was later merged into another home video marketing company. From 2000 to 2005 he worked as a contract marketing and human resources consultant to several local and national companies. In 2005 Mr. Power began working as a franchise development consultant on a full-time basis. Since that time he has helped more than three dozen companies initiate and develop their franchising program. He notes that there are many companies interested in developing a franchise program, and who need his specialized assistance. Mr. Power is a “hands-on” franchise consultant. He said, “I am the ‘nuts and bolts’ person who tends to the details for my clients.” Mr. Power holds a B.S. degree with a major in Marketing. See: www.biltmorefranchise.com You may contact Mr. Power at: jpower@biltmorefranchise.co - Visit John Power's Website |
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Anne BarrAnne Barr has over 26 years experience in sales and marketing, six years as a franchisee. She has assisted over 367 business owners and purchasers to achieve their goals in career change, transition and exit strategy. She holds the designation of Certified Franchise Executive from the International Franchise Association, Certified Business Intermediary from the International Business Brokers Association and Board Certified Broker from the Texas Association of Business Brokers. Anne is active in professional organizations, networking groups and volunteers for non-profit entities. As owner/operator of four successful businesses, Anne has proven people skills and enjoys helping clients find the right "fit" in business ownership. Visit www.FranchiseOpportunitySpecialist.com for more information about me and my company. - Visit Anne Barr's Website |
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John BrennanJohn Brennan Ed.D. Dr. Brennan is President of Interpersonal Development, LLC, a training and development firm. Interpersonal Development has provided sales training and coaching to more than 3,000 sales reps from over 100 companies. A native of Australia, Dr. Brennan received his doctorate from the University of Rochester. His dissertation researched the effectiveness of Behavioral Modeling Technology in training people in interpersonal skills. While he has spent most of his career designing or delivering training, he was also a Vice-President of Sales of a training and development franchise with operations in 25 markets. Dr. Brennan has designed and delivered sales training in North America, Asia, Europe, Australia and the Middle East. He has been a guest speaker at numerous national and regional professional conferences. When Microsoft wanted Best Practices articles on sales for their web site, they called Dr. Brennan. The results are at http://office.microsoft.com/en-us/FX011387391033.aspx His firm’s clients have included Volvo, The Prudential, Merrill Lynch, Eastman Kodak, Gannett, Equifax Europe, the Economist Group and countless small businesses. - Visit John Brennan's Website |
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Jay Kubassek(Jay's Full Bio: EvanCarmichael.com/jaykubassek) In five years, Canadian-born entrepreneur Jay Kubassek went from selling mufflers at a Midas franchise to revolutionizing Internet marketing with the 2004 launch of CarbonCopyPRO, a online marketing education company, now worth over $20 million with customers in over 160 countries.
As an independent film producer, his upstart film fund Aliquot Films is currently producing a films with Spike Lee and Abel Fererra (starring Ethan Hawke and Dennis Hopper.)
Jay's entrepreneurial spirit is irrepressible. He’s the owner of five companies, a professional speaker and trainer, international real estate developer/investor, extreme sport enthusiast and emerging philanthropist. Jay resides in NYC with his wife Jamie, son Milo and dog Cooper. Visit Jay's official website: www.JayKubassek.com - Visit Jay Kubassek's Website |
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