Franchises Regulation

Franchises Regulation, M.R. 29/2012 The Franchises Act , C.C.S.M. c. F156 Regulation 29/2012 Registered March 26, 2012 bilingual version (HTML) Table of Contents Section 1 Definitions 2 Contents of disclosure document 3 Risk warnings 4 Requirements when disclosure document provided in parts 5 Methods of delivery of disclosure documents 6 Methods of delivery of statement of material change 7 Financial statements 8 Exemption from requirement to provide financial statements 9 Prescribed methods for delivering notice of rescission 10 Prescribed amount of total annual investment 11 Prescribed amount of refundable deposit 12 Coming into force Schedule A Disclosure document requirements B Forms INTERPRETATION Definitions 1(1) The following definitions apply in this regulation. "Act" means The Franchises Act. («  Loi  ») "earnings projection" includes any information given by or on behalf of the franchisor or the franchisor's associate, directly or indirectly, from which a specific level or range of actual or potential sales, costs, income, revenue or profits from franchises or businesses of the franchisor or the franchisor's associates of the same type as the franchise being offered can easily be ascertained. (« prévisions des résultats ») Determining same type of franchise 1(2) For the purposes of this regulation, a franchise is of the same type as another franchise or a business if they are operated or are to be operated under the same trademark, trade name, logo or advertising. DISCLOSURE DOCUMENTS Contents of disclosure document 2(1) A disclosure document must contain the following: (a) the risk warning statements required under section 3; (b) the required information about the franchisor specified in Part 1 of Schedule A; (c) the required information about the franchise specified in Part 2 of Schedule A; (d) the lists of franchisees and businesses specified in Part 3 of Schedule A; (e) the financial statements required under section 7 or the statement under section 8. Disclosure documents prepared for other jurisdictions 2(2) A franchisor may use as its disclosure document a document that is prepared and used to comply with the disclosure requirements under the laws of another jurisdiction if the franchisor includes such additional information with that document as is necessary to comply with the disclosure requirements of the Act and this regulation. Certificate of franchisor 2(3) A certificate of franchisor in Form 1 of Schedule B must be attached to the disclosure document. Completing certificate of franchisor 2(4) The certificate of franchisor must be signed and dated, (a) in the case of a franchisor that is not incorporated, by the franchisor; (b) in the case of a franchisor that is incorporated and has only one director or officer, by that person; or (c) in the case of a franchisor that is incorporated and has more than one officer or director, by at least two persons who are officers or directors. Risk warnings 3 A disclosure document must contain the following statements at the beginning of the document: 1. A prospective franchisee should seek information on the franchisor and on the franchisor's business background, banking affairs, credit history and trade references. 2. A prospective franchisee should seek expert independent legal and financial advice in relation to franchising and the franchise agreement before entering into the franchise agreement. 3. A prospective franchisee should contact current and previous franchisees before entering into the franchise agreement. 4. Lists of current and previous franchisees and their contact information can be found in this disclosure document. Requirements when disclosure document provided in parts 4 The following rules apply when a disclosure document is not delivered as one document: (a) the risk warning statements required under section 3 must be provided first; (b) all of the required information required in a Part of Schedule A must be provided together; (c) the following statement must be printed prominently at the top or front of any document containing information that forms part of the disclosure document: THE FOLLOWING INFORMATION FORMS PART OF THE DISCLOSURE DOCUMENT REQUIRED TO BE PROVIDED UNDER THE FRANCHISES ACT . (d) the certificate of franchisor must be included with the last part of the disclosure document provided by the franchisor. Methods of delivery of disclosure documents 5(1) For the purposes of subsection 5(4) of the Act, a disclosure document may be delivered (a) by prepaid courier; or (b) by electronic means, if (i) the disclosure document (A) is delivered in a form that enables the recipient to retrieve and process the disclosure document, and (B) contains no links to or from external documents or content, and (ii) a written acknowledgment of receipt is received from the prospective franchisee. Requirements when delivery by electronic means 5(2) If a disclosure document is delivered by electronic means and consists of separate electronic files, the disclosure document must contain an index for each file that sets out (a) the file name; and (b) if the file name is not sufficiently descriptive of the subject matter dealt with in the file, a statement of that subject matter. STATEMENT OF MATERIAL CHANGE Methods of delivery of statement of material change 6(1) A statement of material change may be delivered by any method set out in subsection 5(4) of the Act or in subsection 5(1) of this regulation. Certificate of franchisor 6(2) A certificate of franchisor in Form 2 of Schedule B must be attached to a statement of material change. Completing certificate of franchisor 6(3) Subsection 2(4) applies to a certificate of franchisor for a statement of material change. FINANCIAL STATEMENTS Financial statements 7(1) Subject to section 8, a franchisor must include financial statements that meet the requirements of this section as part of the disclosure document. Preparation requirements 7(2) The financial statements of the franchisor must be prepared: (a) in accordance with Canadian generally accepted accounting principles as set out in The Canadian Institute of Chartered Accountants Handbook - Accounting ; or (b) in accordance with generally accepted accounting principles of the jurisdiction in which the franchisor is based, if the statements are supplemented by information that sets out any changes necessary to make the presentation and content of such statements equivalent to those of clause (a). Audit and review 7(3) Subject to subsection (4), the financial statements must be either (a) audited in accordance with Canadian generally accepted auditing standards set out in The Canadian Institute of Chartered Accountants Handbook - Assurance ; or (b) reviewed in accordance with Canadian generally accepted standards for review engagements set out in The Canadian Institute of Chartered Accountants Handbook - Assurance . Audit and review standards in other jurisdictions 7(4) The financial statements may be audited or reviewed in accordance with the standards of the jurisdiction in which the franchisor is based if those standards are at least equivalent to those referred to in subsection (3). Fiscal year 7(5) Subject to subsections (6) and (7), the financial statements must be for the most recently completed fiscal year of the franchisor's operations. Previous fiscal year 7(6) If 180 days have not yet passed since the end of the most recently completed fiscal year and the financial statements for that fiscal year have not been prepared and reported on, the disclosure document must contain the financial statements for the previous fiscal year. First year of operations 7(7) If a franchisor has operated for less than one fiscal year or if 180 days have not yet passed since the end of the first fiscal year of operations and the financial statements for that fiscal year have not been prepared and reported on, the disclosure document must contain the opening balance sheet for the franchisor. Exemption from requirement to provide financial statements 8(1) A franchisor is not required to provide the financial statements required under section 7 if (a) the franchisor has a net worth on a consolidated basis according to its most recent financial statements, which have been audited or for which a review engagement report has been prepared, which (i) is at least $5,000,000, or (ii) is at least $1,000,000, if the franchisor is controlled by a corporation whose net worth on a consolidated basis according to its most recent financial statements that have been audited or for which a review engagement report has been prepared is at least $5,000,000; (b) the franchisor (i) has had at least 25 franchisees engaged in business in Canada at all times during the five-year period immediately preceding the date of the disclosure document, (ii) has had at least 25 franchisees engaged in business in a single jurisdiction other than Canada at all times during the five-year period immediately preceding the date of the disclosure document, (iii) is controlled by a corporation that meets the requirements of subclause (i), (iv) is controlled by a corporation that meets the requirements of subclause (ii), (v) has had at least 25 franchisees engaged in business in Canada at all times during a portion of the five-year period immediately preceding the date of the disclosure document and is controlled by a corporation that had at least 25 franchisees engaged in business in Canada at all times during the remainder of that five-year period, or (vi) has had at least 25 franchisees engaged in business in a single jurisdiction other than Canada at all times during a portion of the five-year period immediately preceding the date of the disclosure document and is controlled by a corporation that had at least 25 franchisees engaged in business in that jurisdiction at all times during the remainder of that five-year period; (c) the franchisor or a corporation controlling the franchisor (i) has engaged in the line of business associated with the franchise continuously during the five-year period immediately preceding the date of the disclosure document, (ii) is controlled by a corporation that meets the requirements of subclause (i), or (iii) has engaged in the line of business associated with the franchise continuously during a portion of the five-year period immediately preceding the date of the disclosure document and is controlled by a corporation that engaged continuously in that line of business during the remainder of that five-year period; and (d) during the five-year period immediately preceding the date of the disclosure document, (i) in the case of a franchisor described in subclause (b)⁠(i), (iii) or (v), the franchisor, the franchisor's associates and the directors, general partners and officers of the franchisor have not had any conviction, judgment, order or award relating to fraud or unfair or deceptive business practices made against any of them in Canada, and (ii) in the case of a franchisor described in subclause (b)⁠(ii), (iv) or (vi), the franchisor, the franchisor's associates and the directors, general partners and officers of the franchisor have not had any conviction, judgment, order or award relating to fraud or unfair or deceptive business practices made against any of them in Canada or in the jurisdiction referred to in subclause (b)⁠(ii) or (vi). Notice of exemption 8(2) If a franchisor is not required to provide financial statements, the certificate of franchisor referred to in subsection 2(3) must include a statement that the franchisor meets the requirements of this section and is not required to provide financial statements. NOTICE OF RESCISSION Prescribed methods for delivering notice of rescission 9(1) For the purposes of subsection 6(3) of the Act, a notice of rescission may be delivered by prepaid courier. Effective date 9(2) For purposes of clause 6(4)⁠(e) of the Act, a notice of rescission delivered by prepaid courier is effective when the notice of rescission is provided to the franchisor by the courier. MISCELLANEOUS PROVISIONS Prescribed amount of total annual investment 10 For the purposes of clause 5(11)⁠(g) of the Act, the prescribed amount is $5,000. Prescribed amount of refundable deposit 11 For the purposes of subsection 5(14) of the Act, the prescribed amount is 20% of the initial franchise fee, to a maximum of $100,000. Coming into force 12 This regulation comes into force on the same day that The Franchises Act , S.M. 2010, c. 13, comes into force. SCHEDULE A (Subsection 2(1)) DISCLOSURE DOCUMENT REQUIREMENTS PART 1 REQUIRED INFORMATION ABOUT THE FRANCHISOR Business background of franchisor 1 The following information about the business background of the franchisor: (a) the name of the franchisor; (b) the name under which the franchisor is doing or intends to do business; (c) the franchisor's principal business address and, if the franchisor's principal business address is outside Manitoba, the name and address of a person authorized to accept service in Manitoba on the franchisor's behalf; (d) the business form of the franchisor, whether corporate, partnership or otherwise, and if incorporated, the jurisdiction where the franchisor is incorporated; (e) if the franchisor is a subsidiary, the name and principal business address of the parent; (f) the length of time the franchisor has operated a business of the same type as the franchise being offered, has granted franchises of that type or has granted any other type of franchise; (g) if the franchisor has offered a franchise of a different type from that being offered, a description of every such type of franchise, including for each type of franchise (i) the length of time the franchisor has offered the franchise to prospective franchisees, and (ii) the number of franchises granted during the five-year period immediately preceding the date of the disclosure document. Business background of directors, general partners and officers 2 The following information about the business background of the directors, the general partners and the officers of the franchisor: (a) the name and current position of each person; (b) a brief description of the prior relevant business experience of each person; (c) the length of time each person has been engaged in business of the same type as the franchise being offered; (d) the principal occupation and the employers of each person during the five-year period immediately preceding the date of the disclosure document. Previous convictions and pending charges 3 A statement indicating whether, during the 10-year period immediately preceding the date of the disclosure document, the franchisor, the franchisor's associate or a director, a general partner or an officer of the franchisor was convicted of fraud, unfair or deceptive business practices or a violation of a law that regulates franchises or business, or if there is a charge pending against the person involving such a matter, and the details of any such conviction or charge. Administrative orders and proceedings 4 A statement indicating whether, during the 10-year period immediately preceding the date of the disclosure document, the franchisor, the franchisor's associate or a director, a general partner or an officer of the franchisor was subject to an administrative order or penalty under a law that regulates franchises or business, or if the person is the subject of any pending administrative actions to be heard under such a law, and the details of any such order, penalty or pending action. Civil proceedings 5 A statement indicating whether, during the 10-year period immediately preceding the date of the disclosure document, the franchisor, the franchisor's associate or a director, a general partner or an officer of the franchisor was found liable in a civil action for misrepresentation, engaging in unfair or deceptive business practices or violating a law that regulates franchises or business, including a failure to provide proper disclosure to a franchisee, or if a civil action involving such allegations is pending against the person, and the details of any such action or pending action. Bankruptcy 6 Details of any bankruptcy or insolvency proceedings, voluntary or otherwise, any part of which took place during the six-year period immediately preceding the date of the disclosure document, in which the debtor was (a) the franchisor or the franchisor's associate; (b) a corporation whose directors or officers include a current director, officer or general partner of the franchisor, or included such a person at a time when the bankruptcy or insolvency proceeding was taking place; (c) a partnership whose general partners include a current director, officer or general partner of the franchisor, or included such a person at a time when the bankruptcy or insolvency proceeding was taking place; or (d) a director, an officer or a general partner of the franchisor in his or her personal capacity. PART 2 REQUIRED INFORMATION ABOUT THE FRANCHISE Costs of establishing the franchise 7 A list of all of the franchisee's costs associated with the establishment of the franchise, including (a) the amount of any deposits or initial franchise fees, or the formula for determining the amount, whether the deposits or fees are refundable and if so, under what conditions; (b) an estimate of the costs for inventory, supplies, leasehold improvements, fixtures, furnishings, equipment, signs, vehicles, leases, rentals, prepaid expenses and all other tangible or intangible property and an explanation of any assumptions underlying the estimate; and (c) any other costs associated with the establishment of the franchise not listed in subsection (a) or (b), including any payment to the franchisor or the franchisor's associate, whether direct or indirect, required by the franchise agreement, the nature and amount of the payment and when the payment is due. Other fees 8 The nature and amount of any recurring or isolated fees or payments, other than those listed in section 7, that the franchisee must pay to the franchisor or the franchisor's associate, whether directly or indirectly, or that the franchisor or the franchisor's associate imposes or collects in whole or in part on behalf of a third party, whether directly or indirectly, except for payments required to be collected by law on behalf of a municipal, provincial or federal government or governmental agency. Guarantees and security interests 9 A description of the franchisor's policies and practices, if any, regarding guarantees and security interests required of franchisees. Estimate of operating costs 10(1) If an estimate of annual operating costs for the franchise, or of operating costs for the franchise for another regular period, is provided, whether directly or indirectly, a statement specifying (a) the assumptions and bases underlying the estimate; and (b) where information that substantiates the estimate is available for inspection. 10(2) If an estimate of annual operating costs for the franchise, or of operating costs for another regular period, is not provided, a statement to that effect. Earnings projection 11(1) If an earnings projection for the franchise is provided, whether directly or indirectly, a statement specifying (a) the assumptions and bases underlying the projection, its preparation and its presentation; (b) whether the projection is based on actual results of existing franchises or of existing businesses of the franchisor or the franchisor's associates of the same type as the franchise being offered and, if so, the locations, areas, territories or markets of such franchises and businesses; (c) if the projection is based on a business operated by the franchisor or the franchisor's associate, that the information may differ in respect of a franchise operated by a franchisee; and (d) where information that substantiates the projection is available for inspection. 11(2) If an earnings projection for the franchise is not provided, a statement to that effect. Financing 12 The terms and conditions of any financing arrangements that the franchisor or the franchisor's associate offers, whether directly or indirectly, to the franchisee. Training 13(1) A description of any training offered to the franchisee by the franchisor or the franchisor's associate, including where the training will take place if known at the date of disclosure, whether the training is mandatory or optional and, if it is mandatory, a statement specifying who bears the costs of the training. 13(2) If training is not offered to the franchisee by the franchisor or the franchisor's associate, a statement to that effect. Manuals 14(1) If the franchisee will be required to operate in accordance with manuals provided by the franchisor, the table of contents of each manual or a statement specifying where the manuals are available for inspection. 14(2) If no manuals are provided to the franchisee, a statement to that effect. Advertising 15 If the franchisee will be required to contribute to an advertising, marketing, promotion or similar fund, a statement describing the fund and specifying (a) the amount or the basis of calculating the amount of the franchisee's required contribution; (b) the percentage of the fund that has been spent on national campaigns and local advertising in the two fiscal years immediately preceding the date of the disclosure document; (c) the percentage of the fund, other than the percentage referred to in subsection (b), that has been retained by the franchisor, the franchisor's parent or the franchisor's associates in the two fiscal years immediately preceding the date of the disclosure document; (d) a projection of the percentage of the fund to be spent on national or local advertising campaigns for the current fiscal year; (e) a projection of the percentage of the fund to be retained by the franchisor, the franchisor's parent or the franchisor's associates in the current fiscal year; and (f) whether reports on advertising activities financed by the fund will be made available to the franchisee. Purchase and sale restrictions 16 A description of any restrictions or requirements imposed by the franchise agreement with respect to (a) obligations to purchase or lease from the franchisor or the franchisor's associate or from suppliers approved by the franchisor or franchisor's associate; (b) the goods and services the franchisee may sell; and (c) to whom or by what means the franchisee may sell goods or services. Rebates, commissions, payments or other benefits 17 A description of the franchisor's policies and practices regarding rebates, commissions, payments or other benefits, including (a) the receipt, if any, by the franchisor or the franchisor's associate of a rebate, commission, payment or other benefit as a result of purchases of goods and services by franchisees; and (b) whether rebates, commissions, payments or other benefits are shared with franchisees either directly or indirectly. Territory 18(1) A description of the franchisor's policies and practices regarding the granting of exclusive territory and, if the franchise agreement grants the franchisee rights to exclusive territory, (a) a description of the exclusive territory granted or of the manner in which and the person by whom the exclusive territory will be determined; (b) a description of the franchisor's policy, if any, as to whether the continuation of the franchisee's rights to the exclusive territory depends on the franchisee achieving a specific level of sales, market penetration, or other condition; (c) a description of the circumstances under which the franchisee's rights to the exclusive territory may be altered; and (d) a description of any reservation of rights by the franchisor for Internet sales, telephone sales, catalogue sales or sales by other means. 18(2) If no exclusive territory is granted to the franchisee, a statement to that effect. Proximity 19 A description of the franchisor's policies and practices on the proximity between an existing franchise and (a) another franchise of the franchisor or the franchisor's associate of the same type as the existing franchise; (b) any distributor or licensee using the franchisor's trademark, trade name, logo or advertising; (c) a business operated by the franchisor or the franchisor's associate that distributes similar goods or services to those distributed by the existing franchise under a different trademark, trade name, logo or advertising; or (d) a franchise of the franchisor or the franchisor's associate that distributes similar goods or services to those distributed by the existing franchise under a different trademark, trade name, logo or advertising. Trademarks and other proprietary rights 20 A description of the rights the franchisor or the franchisor's associate has to the trademark, trade name, logo or advertising associated with the franchise. Licences, registrations, authorizations and other permissions 21(1) A description of every licence, registration, authorization or other permission that the franchisee will be required to obtain under federal or provincial laws to operate the franchise. 21(2) A statement that, in addition to those identified in subsection (1), the franchisee may be required under other federal or provincial laws or under the by-laws of a municipal or other local authority to obtain licences, registrations, authorizations or other permissions to operate the franchise and that the franchisee should make inquiries to determine whether such licences, registrations, authorizations or other permissions are required. Personal participation 22 A description of the extent to which the franchisee will be required to participate personally and directly in the operation of the franchise or, if the franchisee is a corporation, partnership or other entity, the extent to which the principals of the corporation, partnership or other entity are so required. Termination, renewal and transfer of the franchise 23 A concise summary of all the provisions in the franchise agreement that deal with the termination of the agreement, the renewal of the agreement and the transfer of the franchise. Dispute resolution 24(1) A description of any restrictions or requirements imposed by the franchise agreement with respect to arbitration, mediation or any other alternative dispute resolution process, in addition to the information required by subsection 5(6) of the Act. 24(2) Every disclosure document shall include the following statement: Mediation is a voluntary process to resolve disputes with the assistance of an independent third party. Any party may propose mediation or other dispute resolution process in regard to a dispute under the franchise agreement, and the process may be used to resolve the dispute if agreed to by all parties. PART 3 LISTS OF FRANCHISEES AND BUSINESSES List of current franchisees 25(1) A list of all franchisees of the franchisor or the franchisor's associates that currently operate franchises in Manitoba of the same type as the franchise being offered, including the name, business address and telephone number of each franchisee. 25(2) If there are fewer than 20 franchisees described in subsection (1) in Manitoba, the list shall also include information on the franchisees that currently operate franchises of the same type in Saskatchewan or Alberta until information is provided on 20 or all the franchisees, whichever is the lesser number. 25(3) If there are fewer than 20 franchisees in Manitoba, Saskatchewan and Alberta, the list shall also include information on franchisees that operate franchises that are geographically closest to Manitoba until information on 20 or all franchisees is provided. List of former franchisees 26 A list of all franchisees of the franchisor or the franchisor's associates that previously operated, in Manitoba or in any other jurisdiction from which the franchisor draws the list of current franchisees required under section 25, a franchise of the same type as the franchise being offered that has been terminated, cancelled, reacquired or not renewed by the franchisor or has otherwise left the franchise system within the fiscal year immediately preceding the date of the disclosure document, including the name, last known address and telephone number of each franchisee. List of current businesses 27 A list of all businesses of the same type as the franchise being offered that the franchisor or the franchisor's associates currently operate in Manitoba, including the name and business address of each business. SCHEDULE B Forms 1 The Forms attached to this Schedule are prescribed for use in the Act. FORM 1 CERTIFICATE OF FRANCHISOR THE FRANCHISES ACT This disclosure document (a) contains no untrue information, representation or statement, whether of a material fact or otherwise; and (b) contains every material fact, document and other information that is required under The Franchises Act and the Franchises Regulation . If the franchisor is not providing financial statements with the disclosure statement due to subsection 8(1) of the Franchises Regulation , the following statement is to be added: The franchisor meets the requirements of subsection 8(1) of the Franchises Regulation and is not including financial statements with this disclosure document as a result. If the disclosure document is not provided as one document, the certificate must identify each part of the disclosure document that was provided to the franchisee and the date each part was provided. Date of Certificate FORM 2 CERTIFICATE OF FRANCHISOR THE FRANCHISES ACT This statement of material change, (a) contains no untrue information, representation or statement, whether of a material change or otherwise; and (b) contains every material change that is required under The Franchises Act and the Franchises Regulation . Date of Certificate