Mulling the Mature Franchisor Exemption in Alberta
Franchising laws vary by province in Canada, and you will find some significant differences in some cases. One such example is the mature franchisor exemption in Alberta's Franchise Act, which allows for different disclosure requirements for franchises based on their capitalization and operational experience. Alberta considered eliminating this exemption in 2016, but the government ultimately decided to keep it and will review the exemption again in 2021.
For this exemption to apply, the franchise must have a net worth of at least $5 million (this drops to $1 million if the franchisor is controlled by a corporation worth at least $5 million) and have a minimum of 25 franchises operating in Canada continuously across the five-year period just before the disclosure document's date.
There are similar exemptions in Ontario, Manitoba and British Columbia's franchise laws, along with regulations in Prince Edward Island and New Brunswick, although the last two have lower financial thresholds.
The purpose of the exemption is to allow provinces to attract larger and established franchisors to a province, since it allows them to avoid disclosing financially sensitive information about their corporate structures, which are often complex for a reason. It presumes that operational history, size and net worth demonstrate a well-managed system and stability, so when franchisors meet this exemption requirement, franchisees do not need the same level of protection that comes with standard disclosures. In general, franchisors have to provide financial statements to potential franchisees for their most recent operating year, but franchisors who qualify for this exemption will not have to do so.
Although the franchisor's financial stability is a top consideration when a person is evaluating franchises, it is worth noting that there are other relevant areas to consider. Before you sign any contract with a franchise, you need to take a close look at the opportunity as whole, including brand relevance in the market, competition, the investment required, the potential return on investment, the entry and exit numbers of franchisees in the system, the training quality, and the background of the franchisor's current team.
The right franchise opportunity is certainly a unique decision for each person, but it will require due diligence no matter who you are or what your overall goals are. When you evaluate a franchise from all the angles, you'll be positioned to make the most informed decision you possibly can before you invest.