I, and others at Fox Rothschild, have had the distinct privilege of working with Joe Adler when our United States-based franchisor clients seek to expand into Canada. Because Canada is typically the logical first step for the international expansion of a US franchise system, I reached out to Joe and asked him to summarize the top issues to consider. He provided the following points:
The Top 5 Issues to Address when Franchising in Canada
US franchisors looking to expand their franchise systems internationally often first look to Canada as that country offers US investors a secure economy, sophisticated population and welcoming business environment. According to the Canadian Franchise Association, Canada currently hosts approximately 1,100 franchise systems and 78,000 franchised units, representing some of Canada’s most recognized and best-loved brands. Notwithstanding its seductive appeal, bringing a franchise system into Canada can be a complicated enterprise which requires specific Canadian legal and accounting expertise.
The top 5 issues to address when expanding into Canada include the following:
- A US trademark registration is not effective in Canada and, as such, US franchisors should protect their trademarks in Canada as soon as they intend to expand into that country.
- There are currently 4 Canadian provinces which impose franchise disclosure obligations upon franchisors: Ontario, Alberta, PEI and New Brunswick. There are no registration requirements, but US franchisors are required to “Canadianize” their FDDs to ensure compliance with Canadian law.
- Franchising in Canada triggers certain cross-border taxes and other tax issues which should be addressed with accountants having the relevant expertise.
- US audited financial statements may not comply with Canadian generally accepted accounting principles and any divergences in this regard should be highlighted to Canadian prospective franchisees.
- Depending on the product or service offered, Canadian laws may impose unique requirements on the franchise system which should be addressed when preparing the Canadian legal documents.
In our experience, Joe hit the nail on the head. In order to make this process efficient, using an attorney and accountant in Canada who has experience in "Canadianizing" the US franchise disclosure document and dealing with the cross-border issues outlined by Joe is critical. Fox Rothschild can assist you in finding the "right" attorney and accountant for the job.
Our guest blogger is Joseph Adler, a franchise lawyer with the firm of Hoffer Adler LLP, in Toronto, Ontario. Joe is deeply involved with the International Franchise Association and the Canadian Franchise Association, where he is a Director and Executive Member of the Board of Directors. Joe can be reached at www.hofferadler.com. We deeply thank Joe for his assistance.