Michael Ford (post until Oct. 31/18)
Corporate

Purchasing a business Part 3: franchises

In the final instalment of a three-part series on the legal ins and outs of buying a business, Toronto lawyer Sarita Samaroo-Tsaktsiris looks at the unique considerations of purchasing a franchise.

When it comes to purchasing a franchise, there are a number of special considerations, says Toronto lawyer Sarita Samaroo-Tsaktsiris.

"This is one of the biggest decisions a person can make so you want to have a lawyer by your side who can guide you through it," says Samaroo-Tsaktsiris, principal of SST Law Professional Corporation.

“As a potential franchisee, you have expectations that your business will be profitable and retain its value,”  she tells AdvocateDaily.com. “To increase your chances of meeting and surpassing your expectations, it's up to you to investigate before investing.”

Luckily, Samaroo-Tsaktsiris says much of the important information is in the franchise disclosure document, an exhaustive chronicle that every franchisor must produce by law in advance of a deal, detailing the company’s background, litigation history, insolvency information and financial statements.

The document should also contain information specific to the potential investor, including projected costs of their location, copies of proposed franchise agreements and explanations of any restrictions and termination conditions, she says.

Samaroo-Tsaktsiris says potential purchasers should probe the franchisor’s offering based on a number of factors, some of which are found in the non-exhaustive list below:

  • Consumer demand for the product or service offered by a franchisor.
  • The franchisor’s business track record and relationship with existing franchisees.
  • Whether the terms of the legal agreement meet your expectations.
  • The financial strength and durability of the franchisor.
  • The franchisor’s financial interest in your franchise, including the fee, ongoing compensation and the availability of marketing and financial support.
  • Plans for growth and expansion.
  • The cost and attractiveness of your proposed location.

According to Samaroo-Tsaktsiris, Ontario’s franchising law, the Arthur Wishart Act, also provides a number of protections for prospective franchisees, requiring franchisors to notify them of any “material changes” not included in the original disclosure document that was provided that may affect their decision to buy.

“If a disclosure document or a statement of material change is late or incomplete, the franchisee can cancel the agreement without penalty or obligation up to 60 days after receiving it,” she adds.

For Part 1, a five-step guide to buying a business, click here.

For Part 2, which looked at the options for structuring your new business, click here.

To Read More Sarita Samaroo-Tsaktsiris Posts Click Here
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