In Ontario, a franchisor’s disclosure obligation does not end once it has created its first disclosure document. In fact, a disclosure document may need updating every time it is to be given to a prospective or renewing franchisee. Under Ontario’s Arthur Wishart Act, a franchisor is under an obligation to disclose all “material facts” at the time of disclosure to each prospective franchisee.
A “material change” must also be disclosed in a separate document if it occurs anytime commencing upon delivery of the disclosure document to a prospective franchisee and ending when the franchise agreement is signed.
The following is a non-exhaustive list of some areas that typically require updating in a franchise disclosure document:
- Date of issuance of the disclosure document.
- Changes to officers and directors of franchisor.
- Any orders made against and any pending civil or criminal proceedings involving claims against a franchisor, franchisor’s associate, or a director, officer or general partner of the franchisor.
- Details of any bankruptcy or insolvency proceeding that took place during the 6 years immediately preceding the issuance date of the disclosure document against the franchisor, franchisor’s associate, a corporation or partnership which, at the time of since proceeding, had a director, officer or general partner who is now with the franchisor, or a director, officer or general partner in their personal capacity. Incidentally, we have developed a certificate (for use ‘in house’ only) which is to be signed by each of these parties disclosing whether or not they have any involvement in any such proceeding.
- Latest financial statements either audited or review engagement.
- Estimated expenses of setting-up and operating a franchise.
- Latest version of the franchise agreement.
- Any change to registered or pending Canadian trade-marks.
- Insurance requirements for franchisee to follow.
- Current list of all existing franchises.
- Current list of all terminated/transferred franchises.
This bulletin is provided to alert you, as a franchisor, to some important disclosure issues you may need to resolve.