Alberta Franchises Act Disclosure Document: What Must It Contain

When you are considering a franchise in Alberta, the franchisor will often give you a package of information about the opportunity, sometimes called a disclosure document. It is meant to help you see what you are signing up for: who the franchisor is, what the system costs and what obligations you will carry.

This article explains how to approach that document, what to look for, and the independent checks you can run. Which contents are required, and whether any exemption applies, depends on your situation, so it is worth confirming with a lawyer, because requirements and exemptions can change.

This article covers the law of Alberta.

What a disclosure document is for

In plain words, a disclosure document is information the franchisor gives you about the franchise opportunity. What it must contain depends on the rules that apply to your franchise, so it is worth confirming with a lawyer.

Its purpose is to give you the facts before you commit money. It is not a sales brochure, and it does not replace your own review. Treat it as the starting point for questions.

Which items must be included, when the document must be delivered to you, and what remedies exist if it is late or incomplete depend on your situation. It is worth confirming with a lawyer which rules apply to your franchise and whether any exemption is being claimed.

What to look for when you read it

• The legal identity of the franchisor, its directors and its corporate history.
• Copies of every contract you will be asked to sign, including the franchise agreement and any lease or supply agreements.
• Financial statements, and a clear explanation if they are missing or unaudited.
• All fees, such as initial fees, ongoing royalties, advertising contributions and renewal or transfer charges.
• Restrictions on where you can operate, what you can sell and who you can buy from.
• Any litigation or insolvency history involving the franchisor.
• Renewal, termination and exit terms, including what happens to your investment.

If something is missing, ask for it in writing. Keep copies of everything you receive and note the date you received it.

Check the franchisor yourself

You do not have to rely only on what the franchisor tells you. Alberta Corporate Registry searches are requested through a registry agent and include a certified current search, a certified historical search, a certificate of status and certified copies of information, transactions and attachments. These can show the registration date, owners, directors and legal addresses.

A registry agent charges a government fee plus a service fee. A certificate of status confirms status as of a given date only, and a historical certificate of status confirms status as of a past date. Certificates of status are not available for trade names and partnerships.

A Personal Property Registry search by business debtor name is one of the search types you can request, on a Search Request form submitted at any registry agent office in Alberta. The result may be an exact match, an inexact match, no match, or both exact and inexact matches. With an inexact match you may need to search the name again or search the specific registration number, and questions about a result go to the party that registered the interest.

Money and tax questions

If you are buying an existing franchise location from another franchisee, the deal may be a sale of a business. Without an election, each property and service in a business sale is treated as a separate supply, and GST at 5% in Alberta can apply to the taxable parts; Alberta has no provincial sales tax.

The business-assets rule applies where the buyer gets all or substantially all of the property that can reasonably be regarded as necessary to carry on the business. A joint election on form GST44 can mean no tax is payable on the supplies under the agreement, but it is not available where the seller is a registrant and the buyer is not. Even with a valid election, tax is still payable on a taxable service the supplier will render, on a taxable lease, licence or similar supply of property, and, where the buyer is not a registrant, on a taxable sale of real property. Your accountant can tell you whether the election applies to your deal.

If you plan to finance the purchase, ask your lender what it will accept as security and whether the program you are considering covers the assets involved. Programs such as the Canada Small Business Financing Program do not finance share purchases or assets acquired by a holding company.

What to do next

• Note the date you received the disclosure document and keep every page.
• Allow time for a lawyer to review all of the documents before you sign anything or pay a deposit.
• Ask for any missing contracts or financial statements in writing.
• Run Corporate Registry and Personal Property Registry searches on the franchisor.
• Talk with existing and former franchisees about their experience.
• Ask your accountant to review the financial statements and the expected costs.

Time can matter with franchise rights, so book your review early rather than waiting until a signing deadline is close.

Frequently asked questions