Crossing borders: Franchising in the U.S.

This article was provided by Hodgson Russ.

Canada’s franchise industry has continued its explosive growth in 2025. The Canadian Franchise Association projects that the industry will soon employ two million Canadians and contribute more than $133 billion to the national GDP.

Canadian franchisors naturally look south for expansion because the United States has the largest retail economy in the world, and franchising plays a big part. In 2025, output by American franchisors is expected to exceed $936.4 billion, according to the International Franchise Association’s Franchising Economic Outlook. Despite the industry’s strength at home, Canadian franchise systems face significant hurdles expanding into the U.S., including fierce competition and significant regulation.

For more than three decades, Hodgson Russ LLP has helped clear the path for Canadian franchisors launching their brands in the U.S. From concept to contract, the firm handles the legal hurdles for Canadian franchise clients, helping numerous brands accelerate their growth in the U.S. by eliminating legal friction. The firm’s lawyers offer legal advice and counsel that anticipates regulations and changes, providing detailed knowledge that helps clients’ expansions succeed.

Diligent and meticulous with the fine print, Hodgson Russ’ lawyers provide counsel that combines speed and scrutiny for compliance with state and federal franchise regulations. To help prospective Canadian clients, the firm created a legal checklist for U.S. franchise expansion. The document identifies issues for prospective franchisors and encompasses areas such as immigration, tax planning, and risk mitigation that entrepreneurs may overlook when planning an American expansion.

U.S. franchise disclosure and registration

The American franchise industry is highly regulated at the federal and state levels. Federal oversight of franchising falls under the watch of the Federal Trade Commission (FTC). The FTC’s Franchise Rule mandates that all franchisors, whatever their origin, provide prospective U.S. franchisees with a Franchise Disclosure Document (FDD) before signing any agreement or collecting any fees. The FDD must contain information about franchise fees, investment costs, and ongoing franchisee obligations (among many other specific requirements).

Meanwhile, a number of states have their own disclosure rules and require registration of the FDD before any sales activity. The registration requirement varies from a simple notice filing in Michigan to a full review in states like New York, Illinois, and California. The state-level rules grow more complex when one considers that many states have laws governing the franchise relationship. These laws may include a good cause requirement for termination or non-renewal of a franchise agreement.

Often overlooked, almost half of all U.S. states have ‘business opportunity laws’, which may apply to franchise systems. These laws vary by state but generally apply to ventures where the seller (franchisor) represents to the buyer (franchisee) that the buyer can make a profit from commencing a business operation.

Such regulations address issues as diverse as the purchasing of products for a business, establishing business locations, and agreeing on sales and marketing programs. Exemptions exist for franchisors with U.S. federally registered trademarks. This allows Canadian systems that have registered their marks in the U.S. to avoid another layer of disclosure and registration.

Immigration and employment compliance for Canadian franchisors

Canadian franchisors expanding south must adhere to U.S. immigration and employment rules. First, they must ensure that all employees are legally permitted to work in the U.S., whether newly hired in the U.S. or traveling from Canada to America. This may require consultation with an immigration lawyer to ensure understanding of and compliance with federal immigration laws.

Visa options exist for a franchisor sending members of its management team into the U.S. to oversee training or operation of new franchisees, or for those systems building franchisor-owned stores in advance of selling franchises.

Canadian franchisors hiring in the U.S. must comply with all laws that impact employees, including wage and hours, benefits, and health and safety regulations. At the outset of business operations, this may necessitate adapting offer letters and employee materials such as policies, workplace procedures, and an employee handbook. A labor and employment lawyer should assist on these and other employee-related issues at the outset of franchise operations.  

Preserving the marks and using the internet

The primary fee charged by franchisors is the royalty fee, which provides franchisees with the right to use the franchisor’s system, including its trademarks, copyrights, and, in some cases, patents. A franchisor with a logo or name that is not trademarked in America will be viewed as risky by prospective U.S. franchisees.

Thus, the first step for any Canadian franchisor expanding into America is to register its marks with the United States Patent and Trademark Office. Such registration can take upwards of a year. Registering trademarks and names is an act that Canadian franchisors should engage in before formal expansion plans occur.

The U.S. has a growing number of laws governing websites, online privacy, and marketing efforts. A Canadian franchisor relying upon its existing website to attract new franchisees, or potential American customers, must ensure that its terms of use and privacy policy meet both federal and state legal requirements. A Canadian franchisor must also ensure that its website meets the Americans with Disabilities Act of 1990, which, among other things, regulates online advertising and content.

Gaining a foothold in the U.S. marketplace

Perhaps the single largest hurdle to achieving success in the U.S. is gaining acceptance with prospective franchisees. Even highly successful franchise systems in the Canadian market, with strong sales and brand recognition, can struggle to find their first franchisee in the U.S.

This occurs for several reasons. First, as the largest retail marketplace in the world, the American market is coveted. Irrespective of industry, there exists fierce competition in the American marketplace. This fact makes it tough to successfully compete as a new business or an unknown brand.

Second, homegrown brands are familiar. Unless a foreign company has a specific cache, Americans may be wary of investing in a foreign brand.

U.S. market entry strategies for success

Despite this, proven expansion strategies exist for Canadian franchisors seeking to enter the U.S. market. One method is for a franchisor to enlist prospective franchisees from Canada to join the system in the U.S. Canadian franchisors have employed this strategy in the past, most notably, Tim Hortons in the early 2000s.

At that time, it was becoming increasingly difficult to obtain a Tim Hortons franchise within Canada because of market saturation. So, Tim Hortons encouraged prospective Canadian franchisees to buy a franchise in the U.S. instead of in Canada. This allowed Tim Hortons to expand in the U.S. without having to sell its concept exclusively to local franchisees who may have been unfamiliar with the brand. By encouraging Canadians to move south, Tim Hortons expanded into a competitive market with franchisees that understood the brand and how to sell it.

Hodgson Russ assisted with that expansion, providing immigration advice to franchisees seeking E-2 investor visas when entering the U.S. to open new franchises.

Canadian franchisor Just Junk adopted a similar approach when expanding south. In 2007, the Ontario-based junk removal service commenced franchising in Canada. By 2024, with more than 160 Canadian locations, there remained few major metropolitan areas available for potential franchisees. And after 17 years of successful franchising, there existed a second generation —adult children of Just Junk’s original franchisees — who wanted to buy into the Just Junk system. 

When this next generation of franchisees approached Just Junk founder Mike Thorne about expanding into the U.S., he saw the business opportunity as a “win-win.” Much like the Tim Hortons expansion, these potential franchisees were familiar with the Just Junk business model and understood how it could lead to franchise success.

Hodgson Russ helped with this expansion, Americanizing Just Junk’s franchise agreement and drafting and registering its U.S. FDD and Hodgson Russ saw the potential for success. There was no need for Just Junk to sell its concept to potential franchisees. Just Junk knew these potential franchisees well; their parents had worked with the system for years. Also, several of the second-generation Just Junk franchisees had worked for their parents or Just Junk itself. These new franchisees were a good fit for the business model.

Within a year of adopting this model, Just Junk expanded into three U.S. states and is considering entering two additional states.

Another mode of expansion exists when a franchisor opens American locations but does so as corporate-owned stores rather than as franchises. This upfront investment allows a franchisor to establish relationships with American suppliers and navigate foreign supply-chain logistics. This strategy ensures that when the franchisor sells its model to franchisees, those details are ironed out.

With corporate-owned stores in the U.S., a franchisor can work out expansion kinks such as timelines for permitting and construction, or startup costs for employees and advertising. This provides the franchisor with a reasonable basis for certain disclosures that are required in its U.S. FDD, including providing the details of the franchisee’s initial investment in Item 7.

This type of plan also helps a franchisor understand what obstacles potential franchisees may face in the U.S. It’s a nimble strategy with few blind spots for Hodgson Russ’ Canadian clients who have adopted the model.

U.S. franchise expansion: A legal roadmap

Expanding a franchise system into the U.S. presents a complex mix of legal and market challenges. For this, Canadian franchisors seek swift and informed counsel with an iron-clad grasp of compliance.

Hodgson Russ offers this legal strategy and support, unlocking the tremendous growth potential of the American market for its Canadian franchise clients. For a practical starting point, we encourage readers to consult our Legal Checklist for Canadian Franchises Expanding into the U.S., designed to simplify the process and set the stage for confident growth.

From navigating disclosure and registration requirements to addressing employment and immigration concerns, Hodgson Russ helps Canadian franchisors approach U.S. expansion with diligence and foresight. Our franchise lawyers are committed to helping Canadian clients turn cross-border ambition into sustainable business success.

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Jennifer Brevorka is a partner in the firm's Toronto office and has a broad cross-border litigation practice. With substantial legal experience in the U.S. and Canada, Jenny provides strategic guidance for the firm’s Canadian clients. Her franchise expertise includes negotiating franchise agreements for single or multi-unit franchise deals; navigating state franchise registration processes; and assisting franchisors facing investigations by regulators or litigation from franchisees. 

George Eydt is managing partner of the firm's Toronto office and leader of the firm's Canada/U.S. Cross-Border Practice, a team of U.S. lawyers dedicated to serving the needs of Canadian and other international companies and their professional advisors relative to business expansion into the United States. He provides cross-border advice on a wide variety of issues, including franchise and other distribution relationships, structuring of U.S. business expansion, and mergers and acquisitions. He is also the leader of the firm's Franchise & Distribution practice.