Legal information

While not a perfect match, the financial performance of a business in Canada is usually indicative of what the U.S. experience would be and, if there is any difference, the U.S. results are likely to be better.  This allows a franchisor to use Canadian financial success as a validation for U.S. projections.  While six of Canada’s ten provinces have franchise disclosure legislation (many more states in the U.S. and the federal government have such legislation), there is no requirement for registration of the franchise disclosure document with any government body in Canada, as is the case in fourteen of the U.S. states.  This, combined with the well-known Canadian politeness (resulting in less franchise litigation than in the U.S.), the legal spend for franchisors is often considerably lower in Canada than in the U.S.

Financing is another key element in expanding a franchise system in the North America.  Here too, Canada and the U.S. are similar but, at the same time, different.  Both countries have government backed small business loan programs and the nature of lending broadly follows similar patterns and requires similar criteria in both countries.  However, in the U.S. there are far more sources of capital than in Canada and the appetite for risk is considerably greater in the U.S.  Therefore, from a finance point of view, a franchisor expanding from Canada to the U.S. will find that their financial skills developed in Canada will serve them very well in the more relaxed U.S. financial game.

Finally, prospective U.S. franchisees will be very comforted by demonstrated acceptance of a franchise concept in Canada.  Even if a franchise concept is successful in, say, Europe, prospective U.S. franchisees will want to know that the concept transitions well into the North American market.

Having said all of this, any franchisor adopting a Canada first strategy for entering North America should follow all of the best practices for international franchise expansion, including good market research, adaptions of the concept, securing solid supply sources, legal compliance, trade mark protection and dedicating sufficient human resources, to mention a few.  The nice bonus is that such practices will not only make the expansion from Canada to the U.S. safer, better and faster, but also less expensive, as some of the development in Canada will apply to the U.S. or will be adaptable at a reduced cost.

* Edward (Ned) Levitt is a Certified Franchise Executive, a partner at Dickinson Wright LLP, Toronto, Canada, and provides legal services to Canadian and international clients on all aspects of Canadian franchise law.  He was General Counsel to the Canadian Franchise Association (2000-2007) and is a member of the American Bar Association Forum on Franchising, the International Bar Association and the International Committee of the International Franchise Association.  As a member of the Ontario Franchise Sector Working Team, Ned was instrumental in the creation of Ontario’s franchise legislation and has had significant input in the franchise legislative process throughout Canada.  Among his many publications is the leading text, Canadian Franchise Legislation (2001, LexisNexis/Butterworths).  Ned can be reached at 416.646.3842 or nlevitt@dickinsonwright.com.