The type of franchise agreement can vary, especially as the number of franchise units grows beyond single-unit ownership, like in the case of area development, multi-unit franchising, and master franchising.
Area development is a type of franchise agreement in which the franchisee commits to opening a certain number of franchise units in any given geographic area throughout the contract timeframe. The franchisee must pay the initial fees, along with a franchise fee for each additional unit they open.
Single-unit ownership is a model in which a franchisee invests in one unit with no expectation of opening additional locations.
Multi-unit franchisees typically start as single-unit franchise owners and gradually add units to their portfolio.
Master franchising allows prospective owners to develop the brand name in a specific region. The master franchisee takes on the role of the franchisor in that region by recruiting franchisees and providing training and additional ongoing support.
Franchise legislation
Franchising is legislated in British Columbia, Alberta, Manitoba, Ontario, New Brunswick, and P.E.I. The legislation ensures that prospective franchisees are making an informed investment decision. If you’re thinking about going into franchising in these six provinces, you should get familiar with the federal and provincial laws that govern each province, like Ontario’s Arthur Wishart Act.
Coming into effect in 2001, the Wishart Act defines exactly what a franchise is and demands a policy of “fair dealing” between franchisors and franchisees. Most important of all, the Wishart Act legislated that franchisors must deliver disclosure documents containing all the financial information and data needed to understand the mechanics of operating the franchise.
The most important aspect of the Act is that disclosure documents must be delivered to the franchisee at least 14 days prior to signing any franchise agreement. If the franchisee does not receive these documents on time they can back out of the agreement with no penalty. For the franchisor there can be heavy penalties for not providing accurate, concise disclosure documents. The disclosure documents are often hundreds of pages long, however, so any prospective franchisee might want to hire a lawyer to thoroughly read through them.