Acts and Regulations

2010-92 - Disclosure Document

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Document at 1 June 2016
NEW BRUNSWICK
REGULATION 2010-92
under the
Franchises Act
(O.C. 2010-317)
Filed June 10, 2010
Under section 14 of the Franchises Act, the Lieutenant-Governor in Council makes the following Regulation:
Citation
1This Regulation may be cited as the Disclosure Document Regulation - Franchises Act.
Definitions and interpretation
2(1)The following definitions apply in this Regulation.
“Act” means the Franchises Act.(Loi)
“affiliate” has the same meaning as in the Canada Business Corporations Act (Canada).(groupe)
“earnings projection” includes any information given by or on behalf of the franchisor or franchisor’s associate, directly or indirectly, from which a specific level or range of actual or potential sales, costs, income, revenue or profits from franchises or businesses of the franchisor, franchisor’s associates or affiliates of the franchisor of the same type as the franchise being offered can easily be ascertained.(prévisions des résultats)
2(2)For the purposes of this Regulation, a franchise is of the same type as another franchise or a business if they are operated or to be operated under the same trade-mark, trade name, logo or advertising or other commercial symbol.
Methods of delivery of disclosure document
3(1)For the purposes of subsection 5(2) of the Act, the following methods of delivery are prescribed:
(a) delivery by prepaid courier, and
(b) delivery by electronic means, if the disclosure document
(i) is delivered in a form that enables the recipient to view, store, retrieve and print the disclosure document, and
(ii) contains no links to or from external documents or content.
3(2)If a disclosure document is delivered by electronic means and consists of separate electronic files, the disclosure document shall contain an index listing the following for each file:
(a) the file name; and
(b) if the file name is not sufficiently descriptive of the subject matter dealt with in the file, a statement of that subject matter.
Disclosure documents prepared for other jurisdictions
4A franchisor may use as its disclosure document a document that is prepared and used to comply with the disclosure requirements under the franchise law of a jurisdiction outside New Brunswick if the franchisor includes such additional information with that document as is necessary to comply with the disclosure requirements of the Act and this Regulation.
Contents of disclosure document
5Every disclosure document shall contain
(a) the risk warning statements set out in Part 1 of Schedule A,
(b) the required information about the franchisor described in Part 2 of Schedule A,
(c) the required information about the franchise described in Part 3 of Schedule A, and
(d) the lists of franchisees and businesses described in Part 4 of Schedule A.
Certificate of Franchisor
6(1)Every disclosure document shall contain a completed Certificate of Franchisor in Form 1.
6(2)A Certificate of Franchisor shall be signed and dated,
(a) in the case of a franchisor that is not incorporated, by the franchisor,
(b) in the case of a franchisor that is incorporated and has only one director or officer, by that person, or
(c) in the case of a franchisor that is incorporated and has more than one officer or director, by at least 2 persons who are officers or directors.
Financial statements
7(1)Subject to section 8, every disclosure document shall contain financial statements of the franchisor that are prepared in accordance with the generally accepted accounting principles of the jurisdiction in which the franchisor is based and that meet the other requirements of this section.
7(2)The financial statements must be either
(a) audited in accordance with the generally accepted auditing standards set out in the Canadian Institute of Chartered Accountants Handbook, or
(b) reviewed in accordance with the review and reporting standards applicable to review engagements set out in the Canadian Institute of Chartered Accountants Handbook.
7(3)The auditing standards and the review and reporting standards of other jurisdictions that are at least equivalent to those referred to in subsection (2) are acceptable.
7(4)Subject to subsections (5) and (6), the financial statements must be for the most recently completed fiscal year.
7(5)If 180 days have not yet passed since the end of the most recently completed fiscal year and the financial statements for that fiscal year have not been prepared and reported on, the disclosure document shall contain the financial statements for the previous fiscal year.
7(6)If a franchisor has operated for less than one fiscal year or if 180 days have not yet passed since the end of the first fiscal year of operations and the financial statements for that fiscal year have not been prepared and reported on, the disclosure document shall contain the opening balance sheet for the franchisor.
Exemption from requirement to include financial statements
8(1)A franchisor is exempt from the requirement in paragraph 5(4)(a) of the Act and subsection 7(1) of this Regulation to include financial statements in a disclosure document if the following conditions apply:
(a) the franchisor has a net worth on a consolidated basis according to its most recent financial statements, which have been audited or for which a review engagement report has been prepared, which
(i) is at least $2,000,000, or
(ii) is at least $1,000,000, if the franchisor is controlled by a corporation whose net worth on a consolidated basis according to its most recent financial statements that have been audited or for which a review engagement report has been prepared is at least $2,000,000;
(b) the franchisor
(i) has had at least 25 franchisees engaged in business in Canada at all times during the 5-year period immediately preceding the date of the disclosure document,
(ii) has had at least 25 franchisees engaged in business in a single jurisdiction other than Canada at all times during the 5-year period immediately preceding the date of the disclosure document,
(iii) is controlled by a corporation that meets the requirements of subparagraph (i),
(iv) is controlled by a corporation that meets the requirements of subparagraph (ii),
(v) has had at least 25 franchisees engaged in business in Canada at all times during a portion of the 5-year period immediately preceding the date of the disclosure document and is controlled by a corporation that had at least 25 franchisees engaged in business in Canada at all times during the remainder of that 5-year period, or
(vi) has had at least 25 franchisees engaged in business in a single jurisdiction other than Canada at all times during a portion of the 5-year period immediately preceding the date of the disclosure document and is controlled by a corporation that had at least 25 franchisees engaged in business in that jurisdiction at all times during the remainder of that 5-year period;
(c) the franchisor
(i) has engaged in the line of business associated with the franchise continuously during the 5-year period immediately preceding the date of the disclosure document,
(ii) is controlled by a corporation that meets the requirements of subparagraph (i), or
(iii) has engaged in the line of business associated with the franchise continuously during a portion of the 5-year period immediately preceding the date of the disclosure document and is controlled by a corporation that engaged continuously in that line of business during the remainder of that 5-year period; and
(d) during the 5-year period immediately preceding the date of the disclosure document,
(i) in the case of a franchisor described in subparagraph (b)(i) or (iii) or (v), the franchisor, the franchisor’s associates and the directors, general partners and officers of the franchisor have not had any conviction, judgment, order or award relating to fraud or unfair or deceptive business practices made against any of them in Canada, and
(ii) in the case of a franchisor described in subparagraph (b)(ii) or (iv) or (vi), the franchisor, the franchisor’s associates and the directors, general partners and officers of the franchisor have not had any conviction, judgment, order or award relating to fraud or unfair or deceptive business practices made against any of them in Canada or in the jurisdiction referred to in subparagraph (b)(ii) or (vi).
8(2)If a franchisor relies on an exemption under subsection (1), the Certificate of Franchisor referred to in section 6 shall contain a statement that the franchisor meets the requirements of subsection (1) and is therefore not including financial statements in the disclosure document.
Statement of material change
9(1)A statement of material change to be provided under subsection 5(6) of the Act shall be in Form 2.
9(2)A statement of material change shall be signed and dated,
(a) in the case of a franchisor that is not incorporated, by the franchisor,
(b) in the case of a franchisor that is incorporated and has only one director or officer, by that person, or
(c) in the case of a franchisor that is incorporated and has more than one officer or director, by at least 2 persons who are officers or directors.
Amount of total annual investment
10For the purposes of paragraph 5(8)(g) of the Act, the prescribed amount is $5,000.
Commencement
11This Regulation comes into force on February 1, 2011.
SCHEDULE A
DISCLOSURE DOCUMENT REQUIREMENTS
PART 1
RISK WARNINGS
Risk warnings
1A prospective franchisee should seek information on the franchisor and on the franchisor’s business background, banking affairs, credit history and trade references.
2A prospective franchisee should seek expert independent legal and financial advice in relation to franchising and the franchise agreement before entering into the franchise agreement.
3A prospective franchisee should contact current and previous franchisees before entering into the franchise agreement.
4Lists of current and previous franchisees and their contact information can be found in this disclosure document.
PART 2
REQUIRED INFORMATION ABOUT THE FRANCHISOR
Business background of franchisor
1The business background of the franchisor, including
(a) the name of the franchisor,
(b) the name under which the franchisor is doing or intends to do business,
(c) the franchisor’s principal business address and, if the franchisor has an attorney for service in New Brunswick, the name and address of that person,
(d) the business form of the franchisor, whether corporate, partnership or otherwise,
(e) if the franchisor is a subsidiary, the name and principal business address of the parent,
(f) the business experience of the franchisor, including the length of time the franchisor has operated a business of the same type as the franchise being offered, has granted franchises of that type or has granted any other type of franchise, and
(g) if the franchisor has offered a franchise of a different type from that being offered, a description of every such type of franchise, including for each type of franchise,
(i) the length of time the franchisor has offered the franchise to prospective franchisees, and
(ii) the number of franchises granted during the 5-year period immediately preceding the date of the disclosure document.
Business background of directors, general partners and officers
2The business background of the directors, the general partners and the officers of the franchisor, including
(a) the name and current position of each of them,
(b) a brief description of the prior relevant business experience of each of them,
(c) the length of time each of them has been engaged in business of the same type as the franchise being offered, and
(d) the principal occupation and the employers of each of them during the 5-year period immediately preceding the date of the disclosure document.
Previous convictions and pending charges
3A statement indicating whether, during the 5-year period immediately preceding the date of the disclosure document, the franchisor, the franchisor’s associate or a director, a general partner or an officer of the franchisor was convicted of fraud, unfair or deceptive business practices or a violation of a law that regulates franchises, or if there is a charge pending against the person involving such a matter, and the details of any such conviction or charge.
Administrative orders and proceedings
4A statement indicating whether, during the 5-year period immediately preceding the date of the disclosure document, the franchisor, the franchisor’s associate or a director, a general partner or an officer of the franchisor was subject to an administrative order or penalty under a law that regulates franchises, or if the person is the subject of any pending administrative actions to be heard under such a law, and the details of any such order, penalty or pending action.
Civil proceedings
5A statement indicating whether, during the 5-year period immediately preceding the date of the disclosure document, the franchisor, the franchisor’s associate or a director, a general partner or an officer of the franchisor was found liable in a civil action for misrepresentation, engaging in unfair or deceptive business practices or violating a law that regulates franchises, including a failure to provide proper disclosure to a franchisee, or if a civil action involving such allegations is pending against the person, and the details of any such action or pending action.
Bankruptcy
6Details of any bankruptcy or insolvency proceedings, voluntary or otherwise, any part of which took place during the 5-year period immediately preceding the date of the disclosure document, in which the debtor was
(a) the franchisor or the franchisor’s associate,
(b) a corporation whose directors or officers include a current director, officer or general partner of the franchisor, or included such a person at a time when the bankruptcy or insolvency proceeding was taking place,
(c) a partnership whose general partners include a current director, officer or general partner of the franchisor, or included such a person at a time when the bankruptcy or insolvency proceeding was taking place, or
(d) a director, an officer or a general partner of the franchisor in his or her personal capacity.
PART 3
REQUIRED INFORMATION ABOUT THE FRANCHISE
Costs of establishing the franchise
1A list of all of the franchisee’s costs associated with the establishment of the franchise, including
(a) the amount of any deposits or initial franchise fees, or the formula for determining the amount, whether the deposits or fees are refundable and if so, under what conditions,
(b) an estimate of the costs for inventory, supplies, leasehold improvements, fixtures, furnishings, equipment, signs, vehicles, leases, rentals, prepaid expenses and all other tangible or intangible property and an explanation of any assumptions underlying the estimate, and
(c) any other costs associated with the establishment of the franchise not listed in paragraph (a) or (b), including any payment to the franchisor or franchisor’s associate, whether direct or indirect, required by the franchise agreement, the nature and amount of the payment and when the payment is due.
Other fees
2The nature and amount of any recurring or isolated fees or payments, other than those listed in section 1 of this Part, that the franchisee must pay to the franchisor or franchisor’s associate, whether directly or indirectly, or that the franchisor or franchisor’s associate imposes or collects in whole or in part on behalf of a third party, whether directly or indirectly, except for payments required to be collected by law on behalf of a municipal, provincial or federal government or governmental agency.
Guarantees and security interests
3A description of the franchisor’s policies and practices, if any, regarding guarantees and security interests required of franchisees.
Estimate of operating costs
4(1)If an estimate of annual operating costs for the franchise or of operating costs for the franchise for another regular period is provided directly or indirectly, a statement specifying
(a) the assumptions and bases underlying the estimate,
(b) that the assumptions and bases underlying the estimate are reasonable, and
(c) where information that substantiates the estimate is available for inspection.
4(2)If an estimate of annual operating costs for the franchise, or of operating costs for another regular period, is not provided, a statement to that effect.
Earnings projection
5(1)If an earnings projection for the franchise is provided directly or indirectly, a statement specifying
(a) the assumptions and bases underlying the projection, its preparation and its presentation,
(b) that the assumptions and bases underlying the projection, its preparation and its presentation are reasonable,
(c) the period covered by the projection,
(d) whether the projection is based on actual results of existing franchises or of existing businesses of the franchisor, franchisor’s associates or affiliates of the franchisor of the same type as the franchise being offered and, if so, the locations, areas, territories or markets of such franchises and businesses,
(e) if the projection is based on a business operated by the franchisor, franchisor’s associate or affiliate of the franchisor, that the information may differ in respect of a franchise operated by a franchisee, and
(f) where information that substantiates the projection is available for inspection.
5(2)If an earnings projection for the franchise is not provided, a statement to that effect.
Financing
6The terms and conditions of any financing arrangements that the franchisor or franchisor’s associate offers, directly or indirectly, to the franchisee.
Training
7(1)A description of any training or other assistance offered to the franchisee by the franchisor or franchisor’s associate, including where the training or other assistance will take place, whether the training or other assistance is mandatory or optional and, if it is mandatory, a statement specifying who bears the costs of the training or other assistance.
7(2)If training or other assistance is not offered to the franchisee by the franchisor or franchisor’s associate, a statement to that effect.
Manuals
8If the franchisee will be required to operate in accordance with manuals provided by the franchisor, the table of contents of each manual or a statement specifying where in New Brunswick the manuals are available for inspection.
Advertising
9If the franchisee will be required to contribute to an advertising, marketing, promotion or similar fund, a statement describing the fund and specifying
(a) the amount or the basis of calculating the amount of the franchisee’s required contribution,
(b) the percentage of the fund that has been spent on national campaigns and local advertising in the 2 fiscal years immediately preceding the date of the disclosure document,
(c) the percentage of the fund, other than the percentage referred to in paragraph (b), that has been retained by the franchisor, the franchisor’s parent or the franchisor’s associates in the 2 fiscal years immediately preceding the date of the disclosure document,
(d) a projection of the percentage of the fund to be spent on national or local advertising campaigns for the current fiscal year,
(e) a projection of the percentage of the fund to be retained by the franchisor, the franchisor’s parent or the franchisor’s associates in the current fiscal year, and
(f) whether reports on advertising activities financed by the fund will be made available to the franchisee.
Purchase and sale restrictions
10A description of any restrictions or requirements imposed by the franchise agreement with respect to
(a) obligations to purchase or lease from the franchisor or franchisor’s associate or from suppliers approved by the franchisor or franchisor’s associate,
(b) the goods and services the franchisee may sell, and
(c) to whom or by what means the franchisee may sell goods or services.
Rebates, commissions, payments or other benefits
11A description of the franchisor’s policies and practices regarding rebates, commissions, payments or other benefits, including
(a) the receipt, if any, by the franchisor or franchisor’s associate of a rebate, commission, payment or other benefit as a result of purchases of goods and services by franchisees, and
(b) whether rebates, commissions, payments or other benefits are shared with franchisees either directly or indirectly.
Territory
12(1)A description of the franchisor’s policies and practices regarding the granting of exclusive territory and, if the franchise agreement grants the franchisee rights to exclusive territory,
(a) a description of the exclusive territory granted or of the manner in which and the person by whom the exclusive territory will be determined,
(b) a description of the franchisor’s policy, if any, as to whether the continuation of the franchisee’s rights to the exclusive territory depends on the franchisee achieving a specific level of sales, market penetration, or other condition, and
(c) a description of the circumstances under which the franchisee’s rights to the exclusive territory may be altered.
12(2)If no exclusive territory is granted to the franchisee, a statement to that effect.
Proximity
13A description of the franchisor’s policies and practices on the proximity between an existing franchise and
(a) another franchise of the franchisor or franchisor’s associate of the same type as the existing franchise,
(b) any distributor or licensee using the franchisor’s trade-mark, trade name, logo or advertising or other commercial symbol,
(c) a business operated by the franchisor, franchisor’s associate or affiliate of the franchisor that distributes similar goods or services to those distributed by the existing franchise under a different trade-mark, trade name, logo or advertising or other commercial symbol, or
(d) a franchise of the franchisor, franchisor’s associate or affiliate of the franchisor that distributes similar goods or services to those distributed by the existing franchise under a different trade-mark, trade name, logo or advertising or other commercial symbol.
Distance sales
14A description of the franchisor’s policies and practices relating to Internet sales or other distance sales by a franchise, distributor, licensee or business described in section 13 of this Part.
Trade-marks and other proprietary rights
15A description of the rights the franchisor or the franchisor’s associate has to the trade-mark, trade name, logo or advertising or other commercial symbol associated with the franchise and of any known or alleged material impediments to its use.
Licences, registrations, authorizations and other permissions
16(1)A description of every licence, registration, authorization or other permission that the franchisee will be required to obtain under federal or provincial laws in order to sell or distribute the particular goods or services sold or distributed by the franchise.
16(2) A statement that, in addition to those identified in subsection (1), the franchisee may be required under other federal or provincial laws or under the by-laws of a municipal or other local authority to obtain licences, registrations, authorizations or other permissions to operate the franchise and that the franchisee should make inquiries to determine whether such licences, registrations, authorizations or other permissions are required.
Personal participation
17A description of the extent to which the franchisee will be required to participate personally and directly in the operation of the franchise or, if the franchisee is a corporation, partnership or other entity, the extent to which the principals of the corporation, partnership or other entity are so required.
Termination, renewal and transfer of the franchise
18A concise summary of all the provisions in the franchise agreement that deal with the termination of the agreement, the renewal of the agreement and the transfer of the franchise and a list of where these provisions are found in the agreement.
Dispute resolution
19A description of any restrictions or requirements imposed by the franchise agreement with respect to arbitration, mediation or any other alternative dispute resolution process, including any requirements relating to the venue of such a process.
Unilateral amendments
20(1)If the franchisor has the right to unilaterally amend any terms or conditions of the franchise agreement, a statement to that effect.
20(2)The statement may identify the specific terms and conditions that are subject to unilateral amendment, but is not required to do so.
PART 4
LISTS OF FRANCHISEES AND BUSINESSES
List of current franchisees
1(1)A list of all franchisees of the franchisor, franchisor’s associates or affiliates of the franchisor that currently operate franchises in New Brunswick of the same type as the franchise being offered, including the name, business address and telephone number of each franchisee and the business address and telephone number of the franchise.
1(2)If there are fewer than 20 franchisees described in subsection (1) in New Brunswick, the list shall also include information on the franchisees that currently operate franchises of the same type in Ontario, Quebec, Prince Edward Island, Nova Scotia or the State of Maine until information is provided on 20 or all the franchisees, whichever is the lesser number.
1(3)If there are fewer than 20 franchisees described in subsection (1) in New Brunswick and the additional jurisdictions referred to in subsection (2), the list shall also include information on the franchisees that currently operate franchises of the same type elsewhere in Canada until information is provided on 20 or all the franchisees, whichever is the lesser number.
1(4)If there are fewer than 20 franchisees described in subsection (1) in Canada and the State of Maine, the list shall also include information on the franchisees that currently operate franchises of the same type elsewhere until information is provided on 20 or all the franchisees, whichever is the lesser number.
List of former franchisees
2A list of all franchisees of the franchisor, franchisor’s associates or affiliates of the franchisor that previously operated, in New Brunswick or in any other jurisdiction from which the franchisor draws the list of current franchisees required under section 1 of this Part, a franchise of the same type as the franchise being offered that has been terminated, cancelled, reacquired or not renewed by the franchisor or has otherwise left the franchise system within the fiscal year immediately preceding the date of the disclosure document, including the name, last known address and telephone number of each franchisee.
List of current businesses
3A list of all businesses of the same type as the franchise being offered that the franchisor, franchisor’s associates or affiliates of the franchisor currently operate in New Brunswick, including the name and business address of each business.
N.B. This Regulation is consolidated to May 21, 2014.