Underneath the Golden Boy - Robson Hall Faculty of Law

Response to Consultation Paper on Franchise Law 303
Limited, Pizza Hut, Play it Again Sports, Second Cup Ltd., and Dairy Queen
Canada, to name a few. 33
The CFA recognizes and supports the requirement of disclosure and ethical
behavior in franchise relationships. This is evident in the fact that the
Association requires all of its members to abide by its rules and regulations where
no such laws are already in existence. This is more proof that franchise
legislation is necessary in Manitoba.
E. Securities Regulation
Discussing the need for franchise legislation that mandates disclosure invariably
necessitates a contrast with securities regulation. This is primarily because in
several instances, franchise agreements can be analogous to securities. Currently,
the question of whether a franchise agreement is a security must be addressed on
a case-by-case basis, with the amount of control the franchisee has 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 naïve,
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
33
For a full list of CFA members, please refer to the CFA’s official webpage under the heading
“Canadian Franchise Association Members,” online: Search Franchise Opportunities
.
34
David Johnston and Kathleen D. Rockwell, Canadian Securities Regulation, 3rd ed.
(Markham: LexisNexis Canada, 2003) at 37-38.
35
Ibid. at 83-84.
36
Ibid. at 3-4.