Q: Please explain the mature franchisor exemption in Alberta’s Franchises Act.
The mature franchisor exemption allows large, established franchisors to exclude financial statements from their disclosure documents. The qualified exemption, which is found in Regulation 312/2000 of Alberta’s Franchise Act, recognizes different disclosure requirements may apply to certain franchisors by virtue of their operational experience and capitalization.
To be eligible for the exemption, franchisors must:
- have a minimum net worth of $5 million (or $1 million if controlled by a corporation with a net worth of at least $5 million).
- have had at least 25 franchises in operation at all times in Canada during the five-year period immediately preceding the date of the disclosure document.
- have conducted business for at least five years preceding the date of disclosure business (or be controlled by a corporation that meets the two aforementioned requirements).
The same exemption exists under franchise legislation in Ontario, Manitoba, Prince Edward Island, New Brunswick, Ontario, Manitoba and, in February 2017, British Columbia. The financial thresholds are slightly lower in Prince Edward Island and New Brunswick.
Q: Why is this exemption in place from before and now being extended?
Alberta’s exemption is intended to attract large, established franchisors to offer valuable investment opportunities to entrepreneurs in the province’s franchise sector, without requiring them to disclose financially sensitive information about their often complex corporate structures, which large franchisors are often reluctant to do for a variety of reasons.
The exemption assumes high financial net worth, size and operational history are proxies for sophistication, stability and a well-managed franchise system. It assumes franchisors that meet its requirements are less likely to experience significant financial losses and, therefore, prospective franchisees investing in these systems do not require the same level of protection afforded by standard financial disclosure.
In what would have been a significant break from the aforementioned regulated provinces, Alberta’s government recently considered eliminating the mature franchisor exemption from its statute. Its decision not to do so, but rather to extend the availability of the exemption until its next review of the legislation in 2021, ensures the province remains as economically competitive and attractive to large franchisors as the other regulated provinces are.
It also provides greater uniformity in franchise disclosure law across the country.