|Four essential elements of a franchise and meeting legal compliance|
By Chad Finkelstein
June 22, 2011
I frequently get approached by businesses who do not believe that they are franchises. It is common to hear that they just want to enter into a simple licensing agreement, so that they do not have to worry about all of the obligations and liabilities that come with the territory of being a franchisor. Unfortunately, the case of the accidental franchise is all too common, and some would-be “licensors” may find that their structure exposes them to a degree of liability that they are severely unprepared for.
The only provinces where franchise legislation exists are Ontario, Alberta, P.E.I. and New Brunswick, so those are the only provinces where a legal definition of a “franchise” can be found. While the wording differs slightly among them, the essential elements of a franchise are the same, and can be summarized as follows:
- the grant of the right to engage in a business;
- the contractual obligation to make a payment or continuing payments to a franchisor;
- the franchisee’s receipt of the right to sell or distribute goods or services that are substantially associated with the franchisor’s trade-marks; and
- the franchisor’s exercise of significant control over, or offer of significant assistance in, the franchisee’s method of operation, including building design and furnishings, locations, business organization, marketing techniques or training.