UTGB Vol 5.pdf - Robson Hall Faculty of Law

over its investment as the determinative factor. 34 Much like franchise legislation
in Canada, securities legislation requires that a prospectus be issued. The
prospectus is a lengthy document that sets out details of the company, business
management, finances, existing securities, and the securities being qualified.
The prospectus must provide full, true and plain disclosure of all material facts.
Certain facts are mandatory, such as the background of the issuer, its officers
and directors. These requirements are vital for policy reasons. 35
Traditionally, securities regulation aimed to protect its investors by barring
unscrupulous, fraudulent or incompetent issuers from taking advantage of
naive, unsophisticated investors. Currently, objectives of securities regulation
include the protection of investors; ensuring that markets are fair, efficient and
transparent; and the reduction of systemic risk. Investor protection is achieved
in Canada, in part, through disclosure. Issuers, promoters and dealers must
disclose certain amounts and types of information, both at the time of issue and
on a continuous basis. Full, true and plain disclosure is a cornerstone of investor
protection, allowing investors to assess properly the risks of certain
investments. 36
After drawing a parallel between franchise legislation and securities regulation,
one quickly realizes that the same policy reasons for requiring disclosure apply
to franchise law. Forcing franchisors to disclose franchise information to
potential franchisees, as in securities, will be conducive to informed decision#
making. In other words, demanding disclosure will allow franchisees to more
properly assess their investment, thereby achieving the goal of franchise
legislation. Therefore, Manitoba should adopt franchise legislation dictating
adequate disclosure to make informed investment decisions.
F. Conclusion
Having considered the experience of franchisees in Manitoba and Ontario, it
has become clear that there is often a power imbalance between franchisors and
franchisees. Since many franchisees in Manitoba will be more inexperienced
than the franchisors they intend to franchise with, there needs to be an
instrument to level the playing field. This instrument is a franchises act. By
providing disclosure of information pertaining to the franchise, as well as
requiring that all parties act in good faith, a franchisee will receive some
comfort that all parties are required to employ fair dealing, hopefully evening
out the aforementioned power imbalance. In addition, because franchisees will
be better informed after receiving a disclosure document required by franchise
34
David Johnston & Kathleen D. Rockwell, Canadian Securities Regulation, 3'd ed. (Markham:
LexisNexis Canada, 2003) at 37-38.
35
Ibid. at 83--84.
36
Ibid. at 3-4.