This part of the Law Works Disclosure Document Primer Series examines the franchisor’s certificate, financial statements and setup costs requirements.
A franchisor doing business in Ontario is required to deliver to a prospective franchisee a fully compliant Disclosure Document under the provisions of the Arthur Wishart Act (Franchise Disclosure), 2000 and its Regulation. An Ontario Disclosure Document must contain the information and documents as set in this “Disclosure Document Primer” series.
The Disclosure Document must include a formal Certificate certifying that it (i) contains no untrue information, representations or statements, and (ii) includes every material fact, financial statement, statement and other information required by the Act and the Regulation.
The Certificate is required to be signed and dated by the director or officer of the franchisor, if the franchisor has only one director or officer; or by at least two persons who are officers or directors, if the franchisor has more than one officer or director.
The date of the Certificate should reflect the fact that it is up to date, containing all required information, as of the date it is being delivered to the prospective franchisee.
Subject to certain exemptions, a Disclosure Document is required to contain the franchisor’s financial statements for its most recently completed fiscal year. The financial statements are required to be audited or prepared on a “review engagement basis”, i.e., in accordance with generally accepted accounting principles that are at least equivalent to the review and reporting standards applicable to review engagements set out in the Canadian Institute of Chartered Accountants Handbook.
Where 180 days have not yet passed since the end of the most recently completed fiscal year and a financial statement has not been prepared and reported for that year, the Disclosure Document has to include such financial statements for the previous fiscal year.
Where a franchisor is a start-up company that has operated for less than one fiscal year, or if 180 days have not yet passed since the end of the first fiscal year of operations and a financial statement for that year has not been prepared as required above, the Disclosure Document is required to include the opening balance sheet for the franchisor.
The Disclosure Document is required to a list of all of the franchisee’s costs associated with the establishment of the franchise, including the following:
- the amount of any deposits or franchise fees, whether the deposits or fees are refundable, and if so, under what conditions;
- an estimate of the costs for inventory, leasehold improvements, equipment, leases, rentals and all other tangible and intangible property necessary to establish the franchise and an explanation of any assumptions underlying the estimate, and
- any other costs associated with the establishment of the franchise not listed in subparagraphs (i) or (ii), including any payment to the franchisor, whether direct or indirect, required by the franchise agreement, the nature and amount of the payment, and when the payment is due.
For more information, please go to Law Works’ Franchise Disclosure Documents Practice Page.