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Franchises in a professional context

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Business law, Franchising law

The Appeal of Owning a Franchise

Franchises, being an established business model, both in Quebec and elsewhere, are often a tempting investment – either by becoming a franchisee of an existing network or by creating a new network altogether, as a franchisor.

However, it should be noted that this idea of franchising must be slightly modified when a professional activity is involved. We can, for example, think of franchise networks operating businesses in the medical or chartered accounting fields, to name a few.

Specific Legislation in Special Franchisee-Franchisor Relationship

Indeed, in such cases, the franchisee-franchisor relationship must also comply with specific legislation relating to the rights and obligations of the parties in terms of their professional duties. Specifically, such legislation would namely include the various Codes of ethics for each professional order involved.

To illustrate this concept, this means that “professional” franchise agreements must be modified to ensure that the payment of royalties by the franchisee does not constitute an illegal sharing or partition of his professional revenue, which is prohibited under the policies of a number of professional orders. Furthermore, one should also avoid royalties in the form of commissions, rebates or kickbacks since this may also constitute an illegal revenue-sharing scheme, which would be prohibited by several professional orders.

It is therefore highly recommended to have your attorney review in great detail any franchise agreement involving a professional field since it may involve some type of prohibited activity, which may, if not immediately addressed and corrected, create more problems, or even significant disputes and often very expensive litigation.

Harry Karavitis, Lawyer

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