While it’s an exciting time to buy a franchise business, due diligence is key!
Did you know that when buying a franchise in Alberta, the Franchisor is required to provide the potential Franchisee with certain disclosure about the business? The Franchise Disclosure Documents (FDD) will assist you in making an informed decision on buying into a particular business.
Potential risks can be averted by carefully reviewing all documents. Such risks could include lawsuits pending against the franchisor or uncovering numerous outlets that may have recently closed. These are just a few issues that could determine if a particular venture carries too much risk.
It’s always better to be safe rather than sorry.
What documents should be provided?
In Canada, the FDD should include the following information:
- Corporate Name
- Business Experience – brief history & number of years in business
- Directors, Partners & Officers – names, experience & a statement with respect to any criminal proceedings against these persons
- Franchise Experience – have they operated other franchise systems?
- Nature of Business
- Existing Franchisees – names & contact information
- Corporate Outlets – list & addresses of the franchisor-owned outlets
- Required Investment by Franchisee
- Franchise Documents – information pertaining to the Franchise Agreement, ie. term, fees, assignment, advertising, etc.
- Earnings Claims – written or oral information from the franchisor about the range of potential sales, costs, etc.
- Opportunity to Review Documents & Investigate the Franchise – should have at least 14 dates to do so
- Bankruptcy & Insolvency – have there been any bankruptcy claims within 6 months of the date of the disclosure documents?
- Existing Litigation – has the franchisor been involved in any litigation?
- Outlet Closures – have any outlets been closed in the last two years?
- Other Material Information – anything that would influence the decision to acquire or the amount to pay
- Certificate of Disclosure
Once you have reviewed the FDD, you may have some questions such as:
- Do you need to make further inquiries with the Franchisor?
- Do you feel certain information was omitted?
- Do you require further clarification on certain aspects?
Reviewing and understanding these documents is vital. At Juriscorp Law we can assist through every step of the process.