Selling a Franchise in Ontario: Franchisor Disclosure Obligations Under the Arthur Wishart Act

You have built a successful Ontario business and you are wondering whether franchising is the right growth strategy. Franchising can accelerate expansion without the capital cost of opening company-owned locations — but it brings significant legal obligations from day one. Under Ontario's Arthur Wishart Act (Franchise Disclosure), 2000, a franchisor who sells a franchise without proper disclosure can face rescission demands and damages claims that dwarf the franchise fee they collected. Getting this right matters from the moment you sell your first franchise.

Are You a Franchisor Under the Act?

The Arthur Wishart Act applies broadly. If your arrangement with an independent operator involves:

• A grant of the right to engage in a business under your marketing plan or system,
• The use of your trade-mark, trade name, logo, or advertising,
• Payment of a franchise fee,

…you are likely a franchisor under the Act, regardless of what you call the relationship. Some arrangements that businesses label "licences" or "distributorships" are caught by the Act. Get legal advice before you conclude you are outside it.

The Core Obligation: A Compliant Disclosure Document

Every prospective franchisee in Ontario must receive a disclosure document that meets the requirements of the Act and its regulations before:

• Signing any franchise agreement, or
• Paying any consideration relating to the franchise.

The document must be delivered at least 14 days before either of those events. Delivering it one day late — or delivering an incomplete document — triggers the same legal consequences as never delivering it at all.

What Must Be in the Disclosure Document?

The regulation under the Act is detailed. At minimum, your disclosure document must include:

About the franchisor:

• Full legal name, business names, addresses, and contact details
• Business experience of the franchisor and its directors and officers
• Details of any civil litigation, criminal proceedings, or regulatory actions involving the franchisor or its principals within a specified recent period

Financial statements: Audited financial statements for the most recent fiscal year (and sometimes two years, depending on how long you have been operating). If your business is brand new and audited statements are not yet available, there are specific rules for start-up franchisors — understand what is required and how to comply, because stating you have no financials to provide is not always sufficient.

The franchise system:

• A clear description of the franchise system, the business being franchised, and training/support provided
• Restrictions on the franchisee's territory (or a statement that no territory is granted)
• Products or services the franchisee must purchase and from whom
• Any advertising fund and how it is administered

All fees: Every fee the franchisee will pay — initial fee, ongoing royalties, technology fees, advertising contributions, renewal fees, transfer fees — must be disclosed. Omitting or understating a material fee is grounds for rescission.

Current and former franchisee contact information: You must provide a list of current franchisees in Ontario (and possibly Canada-wide) and franchisees who left the system in a specified recent period, with contact details. Franchisees-in-waiting will call these people. Your track record with existing franchisees becomes part of your sales process.

Earnings representations: If you say anything about potential revenues, sales, or profits — in your disclosure document, in your marketing materials, or in a sales conversation — it must be substantiated and included in the disclosure document. Verbal earnings claims that differ from written ones are one of the most common sources of franchise litigation.

Drafting the Franchise Agreement

The franchise agreement sets out the legal relationship for the entire term. Key provisions to address:

• Term and renewal: How long does the initial term last? On what conditions can the franchisee renew?
• Territory: Is it exclusive? What carve-outs exist (e.g., internet sales, other channels)?
• Transfer: Under what conditions can the franchisee sell the franchise? What fees and approvals are required?
• Termination: What triggers termination? What notice is required? What happens to the franchisee's investment if terminated?
• Post-term non-compete: Ontario courts will enforce reasonable non-competes in franchise agreements in some circumstances, but not all; get proper drafting advice.
• System standards: How do you maintain brand consistency? What audit rights do you have?

Material Changes and Ongoing Disclosure

The Arthur Wishart Act does not end at the point of sale. If a material change occurs after delivering a disclosure document but before the franchise agreement is signed, you must promptly deliver an amended or supplementary disclosure document to the prospective franchisee — and the 14-day waiting period starts over.

A material change is any change in the business, operations, capital, or control of the franchisor that would reasonably be expected to have a significant effect on the franchisee's decision to enter into the agreement. Mergers, major litigation, key management changes, and significant financial developments can all qualify.

The Rescission Risk

The consequences of non-compliant disclosure are severe. A franchisee who does not receive a proper disclosure document can rescind the franchise agreement within:

• 60 days if no disclosure document was ever provided (as of writing — verify current timelines)
• 2 years of signing if the document was materially deficient (as of writing — verify)

On rescission, the franchisee is entitled to a refund of all money paid, including the franchise fee, and compensation for any net losses. A single rescission demand from a franchisee who paid a substantial fee can wipe out years of royalty income. Invest in proper documentation before you sell.

Frequently asked questions