Canadian Expansion: A U.S. Attorney’s Cheat Sheet

Vol. 15, No. 1

By

Cassels Brock & Blackwell LLP

Canada has long been a favored destination for U.S. franchisors eyeing international growth. Similarities in culture, business practices and law make northern expansion particularly attractive. At the same time, however, there are important differences that U.S. attorneys should recognize and make known to their clients before they head northward.

Here is my cheat sheet for U.S. franchise attorneys:

1. Go Local – Assemble the right team, consisting of legal, accounting and business advisors who are experienced in the Canadian market. Reputable professionals can be found through referral sources, or trade organizations like the ABA Forum on Franchising or the Canadian Franchise Association.

2. Mark Your Spot – In Canada, protection of trademarks is a matter of federal jurisdiction and should be considered a first priority. Searches should be done to determine availability. Registration provides rights to exclusive use in Canada.

3. Structure – The structuring of franchise expansion (i.e., whether the franchisor will be a U.S. entity or a Canadian subsidiary, and whether expansion will be through single unit franchising, master franchising, area development, area representation or some hybrid method) is largely driven by tax considerations. So, get tax and accounting advice from the outset, and then grow.

4. Canadian Content – A U.S. franchisor likely will have existing forms of documentation, including a franchise agreement. Such documents, and approaches to their use, need to be “Canadianized” to account for local law and custom. The franchisor also may need to prepare new documentation if the program is to be significantly modified for Canada or if local law requires.

5. Disclosure – Whether an existing form of U.S. disclosure document can be modified for use in Canada will depend on each case, but because of differences in disclosure requirements and emerging trends in Canadian case law, it is best to invest resources upfront to produce a sound form of Canadian FDD, while relying on information from U.S. forms.

6. The First Franchise – Providing deal-specific disclosure and executing documents for the first few times can be challenging for a franchisor accustomed to U.S. practices. You should rely on local advisors to help work through growing pains.

Franchising into Canada can provide great opportunity for growing systems. Making sure it is done right from the beginning will help transform opportunity into success.

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