How Current Does the Information in my Disclosure Document Need to Be?

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Many franchisors often ask how current or up-to-date their disclosure document needs to be. They also wonder which items of the disclosure document need to be updated more frequently than others. Franchise legislation in all five provinces, Ontario, Alberta, Prince Edward Island, New Brunswick and Manitoba, has established that certain items of the disclosure document be updated on a going forward basis, while others need only be updated after the end of the franchisor’s current fiscal year. The following looks at both these categories in order to answer these questions.

The information in a disclosure document must be current at the time it is delivered. Unless a required disclosure item is described in relation to a specific time period, the disclosure item must be current at the date of each disclosure. There are certain prescribed items for which the relevant disclosure period is determined in relation to either the date of the disclosure document or the date of the franchisor’s fiscal year-end. 

The following items must be updated on a going forward basis in relation to the date of the disclosure document the following

  1. Business background of the franchisor, including
  • principal business address (in Ontario, if the franchisor’s principal business address is outside Ontario, the name and address of a person authorized to accept service in Ontario on the franchisor’s behalf; and in Manitoba, if the franchisor’s principal business address is outside Manitoba, the name and address of a person authorized to accept service in Manitoba on the franchisor’s behalf);
  • length of time the franchisor has engaged in the line of business;
  • length of time the franchisor has offered franchises in the line of business; and
  • if the franchisor has offered a franchise in another line of business, a description of every franchise in each line of business including the length of time the franchisor has offered the franchise and the number of franchises sold in the five years preceding the date of the disclosure document.
  1. A statement is required indicating whether the franchisor’s associate or a director, a general partner or an officer of the franchisor was subject to an administrative order or penalty under a law that regulates franchises or business, or if the person is the subject of any pending administrative actions to be heard under such a law, and the details of any such order, penalty or pending action.
  2. A statement indicating whether the franchisor, the franchisor’s associate or a director, a general partner or an officer of the franchisor was found liable in a civil action for misrepresentation, engaging in unfair or deceptive business practices or violating a law that regulates franchises or business, including a failure to provide proper disclosure to a franchisee, or if a civil action involving such allegations is pending against the person, and the details of any such action or pending action.
  3. A statement, including a description of details, indicating whether, during the 10 years (five years in New Brunswick) immediately preceding the date of the disclosure document, the franchisor, the franchisor’s associate or a director, general partner or officer of the franchisor has been convicted of fraud, embezzlement, unfair or deceptive business practices, or a violation of a law that regulates franchises or business or if there is a charge pending against any such person involving such a matter. 
  4. Details of any bankruptcy or insolvency proceedings, voluntary or otherwise, any part of which took place during the six years (five years in New Brunswick) immediately preceding the date of the disclosure document against the following persons as debtors:
  • against the franchisor or the franchisor’s associate;
  • against a corporation whose directors or officers include a current director, officer or general partner of the franchisor or included such a person at a time when the bankruptcy or insolvency proceeding was taking place;
  • against a partnership whose general partners include a current director, officer or general partner of the franchisor or included such a person at a time when the bankruptcy or insolvency proceeding was taking place; and
  • against a director, general partner or officer of the franchisor in their personal capacity.
  1. A list of all franchisees of the franchisor or the franchisor’s associates that currently operate in the province, including the name, business address and telephone number of each franchisee.

Note that in Alberta, this disclosure must include all franchisees in the franchisor’s total operating territory.  In Prince Edward Island, the disclosure must include all franchisees in Prince Edward Island, New Brunswick and Nova Scotia.  In New Brunswick, the disclosure must include all franchisees in New Brunswick and any other jurisdiction from which the franchisor draws the list of current franchisees. In Manitoba, if there are fewer than 20 franchisees that currently operate franchises in Manitoba of the same type as the franchise being offered, the list shall also include information on the franchisees that currently operate franchises of the same type in Saskatchewan or Alberta until information is provided on 20 or all the franchisees, whichever is the lesser number. If there are fewer than 20 franchisees in Manitoba, Saskatchewan and Alberta, the list shall also include information on franchisees that operate franchises that are geographically closest to Manitoba until information on 20 or all franchisees is provided.

With respect to the disclosure items which specifically relate to the franchisor’s fiscal year, the following items must be updated after the end of the franchisor’s current fiscal year:

  1. The name, last known address and telephone number of each franchisee in Ontario who operated a franchise of the type being offered that has been terminated, cancelled, not renewed or reacquired by the franchisor or otherwise left the system within the last fiscal year immediately preceding the date of the disclosure document.
  2. For each closure of a franchise of the type being offered within the previous three fiscal years immediately preceding the date of the disclosure document, the reasons for the closure, including whether:
  • the franchisor or franchisor’s associate terminated or cancelled the franchise agreement;
  • the franchisor or franchisor’s associate refused to renew the franchise agreement; or
  • the franchisee refused to renew the franchise agreement or otherwise left the franchise system.

Note that the reason for closure is not required in Manitoba.

All other information in the disclosure document must be current as at the time of each disclosure, including the list of current franchisees.

Voluntary Provinces

Although there is no franchise-specific legislation in voluntary provinces, it is recommended to keep the disclosure document current in order to help avoid claims of misrepresentation.  The disclosure of personal information regarding current or former franchisees is not required by law to be disclosed in voluntary provinces.  Accordingly, due to privacy law considerations, where the lists of franchisees contain personal information and where the franchisor does not have consent to disclose this information to prospective franchisees, it is recommended that these lists be removed from the disclosure document before it is delivered in voluntary provinces.

 

Topics:  Canada, Disclosure Requirements, Franchises

Published In: General Business Updates, Franchise Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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