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What is a franchise?

Pizza Pizza, Shoppers Drug Mart, Harvey’s and Second Cup are just a few Canadian businesses that have one thing in common: they are franchises.

What is a franchise?

A franchise is a business that is given a right to operate by the franchisor, who gives the franchisee rights which are found in the franchise agreement. The franchisor is the party that is giving the right to use his or her business name and structure, and the franchisee is the party that is granted the right to use them.

Those rights often include things such as using the franchisor name for its business and the franchisor’s business structure as well as receiving training.

With rights come responsibilities and both the franchisor and franchisee have responsibilities to each other.

Franchisor responsibilities

Most often the franchisor has the following responsibilities:

  • Protect and manage the brand and its trademarks while ensuring consistency and quality standards are maintained by all franchisees in the system;
  • Provide initial and ongoing training and support;
  • Undertake to provide franchisees with operating systems and support services to help their businesses grow in ways that are effective, efficient and profitable;
  • Continue to evolve the franchise system through, for example, research and development of new products and services; and
  • Handle all brand advertising and (usually) provide franchisees with assistance for their local marketing activities.

Franchisee responsibilities

Usually the franchisee has the following responsibilities:

  • Invest their time, particularly during the start-up phase, by working hands-on in their business to fully understand the operational side of the franchise;
  • Work in partnership with the franchisor, allowing for effective two-way communication between the two parties and a mutually-beneficial relationship;
  • Follow the franchisor’s standards, methods, procedures, techniques and specifications to ensure consistency;
  • Pay a fee (typically an initial franchisee fee and ongoing royalties) to the franchisor for the right to use the franchisor’s trademarks (brand) and business system; and
  • Take care of accounting, local marketing, staffing and the other administrative aspects of operating a business.

What law governs franchises?

The relationship between franchisor and franchisee is governed by the franchise agreement. In addition, most of Canada’s provinces have franchise legislation. Franchisors and franchisees have to follow the provincial franchise laws as well as abide by the franchise agreement in good faith.

What happens if the franchisor and I have a dispute?

If you and the franchisor have a dispute, talk to the franchisor directly or if the franchise system has an advisory council you can speak through them.

If that doesn’t work, then you can go to the Canadian Franchise Association’s Ombudsman which helps facilitate a mediation process between the parties.

If there is still no agreement reached, then you may want to consider litigation although that should be a last resort.

It’s important that you know and understand a franchise agreement before you sign it.

If you are thinking about buying a franchise business and you need help with the franchise agreement you should consult a lawyer.

Read more:

Canadian Franchise Association

Thirteen things to consider before buying a franchise in Canada