A franchise is a business model where one party (the franchisor) grants another party (the franchisee) the right to operate a business using the franchisor’s brand, systems, trademarks, and operating methods in exchange for upfront fees and ongoing royalties. In this relationship, the franchisor will typically retain significant control over the manner in which the franchisee conducts its business in connection with the franchisor’s brand. In return, rather than building a business from the ground up, franchisees buy into an established system that typically includes training, marketing support, operating manuals, and standardized processes.
Franchises exist across many industries, including food service, retail, fitness, home services, and professional services. While franchising can offer the benefit of brand recognition and a proven business concept, it also comes with significant legal and financial obligations.
One of the defining features of franchising is the level of control exercised by the franchisor. Franchisees are usually required to follow strict operational standards covering everything from pricing and suppliers to staffing practices, marketing, store layout, technology systems, and customer service. Franchisors often dictate approved vendors, product offerings, hours of operation, and even how disputes with customers must be handled. This control is designed to protect brand consistency across the system, but it also means franchisees have far less independence than traditional business owners.
In many Canadian provinces, franchisors are legally required to provide a Franchise Disclosure Document (FDD) to a potential franchisee before a franchise agreement is signed and before any non-refundable payment is made towards a franchise. The FDD is intended to give prospective franchisees important information about the business, including fees, financial obligations, litigation history, territory rights, and risks. Failing to provide proper disclosure can give franchisees rescission rights in certain circumstances.
Franchise agreements themselves (which are attached to the FDD) are typically long, complex, and heavily weighted in favour of the franchisor. They often include provisions relating to renewal, termination, non-competition, transfer restrictions, and dispute resolution. These terms can have lasting consequences, particularly if a franchisee later wishes to sell the business, relocate, or exit the system.
Because franchisees are investing significant capital while operating under someone else’s control, disputes can arise over performance expectations, territorial encroachment, supply costs, marketing funds, or termination. Understanding how franchising works and what your agreement actually requires can help prevent costly surprises and better prepare you for the realities of operating within a franchise system.
If you are considering purchasing a franchise or already operate one, it is important to understand both your rights and your obligations before making major commitments. A franchise lawyer is your starting point.
Disclaimer: This article provides general legal information only and does not constitute legal advice. Laws vary by province and individual circumstances. Reading this content does not create a lawyer-client relationship. You should not act or rely on this information without obtaining independent legal advice tailored to your specific situation. Canada Legal Guidance does not provide legal advice.