BUSINESS LAW

There are 3 main elements to consider:

• • Tax
• • Costs of Incorporation
• • Benefit of the corporate veil
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Incorporation is expensive to achieve and to maintain. However, incorporation can be very beneficial with regards to tax and liability minimization. Incorporation ensures that the corporation, NOT the business owner, is held liable for the business’s future debts. This means that in normal circumstances a business owner’s personal property cannot be claimed by non-guaranteed creditors of the corporation i order to satisfy the business’s debts. Incorporation may also help owners benefit from a lower tax rate as well as other advantages. Overall, you should balance all of the factors and consider the specific circumstances of your business in order to determine if incorporation is the right fit for your business.

There are many factors you should consider. Some of these factors include (but are not limited to) the following:

• • Tax consequences
• • The rights of other shareholders
• • Complying with legal requirements
• .

Before deciding to reorganize you should carefully consider the potential consequences and impact of reorganization. Reorganizing share capital in a corporation, dissolving, amalgamating, or incorporating an additional corporation may have significant tax consequences. A corporate reorganization may also affect other shareholders and the rights that are attached to their shares. It may also require shareholders approval. If you decide to reorganize you must ensure that all of the legal and corporate requirements and formalities have been met in order to ensure that the reorganization will be valid and will have complete effect.

There are many factors you should consider. Some of these factors include (but are not limited to) the following:

• • Ownership percentages
• • Responsibilities of the partners
• • Contributions of the partners
• • What will happen in case of the death or retirement of the partners
• • Whether the partners can engage in other activities
• .

Ultimately, the agreement should properly define the terms of the deal between the partners, while also deciding what should be done if any unfortunate or unexpected events occur.

Consult an attorney immediately. It is often far less costly to prevent a fire than it is to put one out. When you become aware of a situation, it is best to get legal advice on:

• • What your rights are
• • What your obligations are
• • What steps you should take in order to best ensure that your interests are protected
• .

If the dispute is already underway, it is important to act quickly because shareholders disputes often move forward at a rapid pace and the stakes are often significant. Ideally, a solution can be negotiated which is beneficial for all parties. However, is that does not occur, you should be prepared to move forward so that you are able to all the steps necessary to preserve your rights and defend your interests.

The answer to this question depends on whether the agreement in question is an agreement between shareholders or a unanimous shareholders agreement.

A unanimous shareholders agreement is an agreement where the all of the company’s current shareholders agree to withdraw certain powers from the board of directors and give those powers directly to the shareholders. A unanimous shareholders agreement should provide for:

• • Which powers will be taken from the board and given to the shareholders
• • How those powers will be exercised by the shareholders
• • Whether higher majorities will be required in order to make certain decisions (ex. 2/3, ¾, all shareholders, etc.)
• .

An agreement between shareholders is an agreement between two or more shareholders which can provides for many different things. For example, these things may include the following:

• • What happens if a shareholder dies
• • What happens if a shareholder decides to sell their shares
• • How shareholders will vote their shares regarding certain questions or issues
• .

An agreement between shareholders should be drafted to reflect all of the points that are important to those shareholders and on which they are prepared to agree. It should also provide for contingencies and any unexpected problems that may occur.

Consult an attorney immediately. It is often far less costly to prevent a fire than it is to put one out. When you become aware of a situation, it is best to get legal advice on:

• • What your rights are
• • What your obligations are
• • What steps you should take in order to best ensure that your interests are protected
• .

If the dispute is already underway, it is important to act quickly because shareholders disputes often move forward at a rapid pace and the stakes are often significant. Ideally, a solution can be negotiated which is beneficial for all parties. However, is that does not occur, you should be prepared to move forward so that you are able to all the steps necessary to preserve your rights and defend your interests.

The board of directors are elected by the shareholders of the corporation. The role of the board of directors is to manage or supervise the business and affairs of the corporation. To this end, a Board of Directors has several powers. For example, a Board of Directors may:

• • Borrow money
• • Hypothecate company property
• • Declare dividends
• • Issue shares in the company to shareholders
• • Acquire shares of the company
• .

The powers of the board of directors can be reduced or varied through a unanimous shareholders’ agreement.

The general rule is that a corporation is the only one liable for its debts. Accordingly, unless a personal suretyship has been signed (a person agreeing to guarantee to pay the debts of the company) or unless certain of the company’s debts are insured, only the company can be held responsible for those debts. Of course, there are exceptions that apply. One of those exceptions is directors’ liability. There are some debts for which directors are personally liable if the company is unable to pay. Examples of these kinds of debts may include, but are not limited to, the following:

• • Unpaid wages that employees have earned
• • Sales taxes that have been collected and not remitted to the government
• • Certain forms of environmental damage caused by the company
• • Making inappropriate payments to shareholders if these payments made the company unable to pay its other debts
• • Any loss experienced by a corporation as a result of negligent or deliberately inappropriate behaviour on the part of the directors
• .

It is often highly recommended for companies to take out directors’ liability insurance for its directors. It should be noted that insurance is not an all-encompassing solution.

Any person can serve as a director of a corporation director as long as they are:

• • A natural person who is 18 or older
• • Not under tutorship or curatorship
• • Not bankrupt
• • Of sound mind and judgment
• • Not prohibited by a Court from being a director
• .

Additionally, the Canadian Business Corporations Act (CBCA) require that at least ¼ of all the directors be Canadian residents.

Yes. While the Canadian Business Corporations Act (CBCA) and Québec Business Corporations Act (QBCA) are quite similar, it is important to note that there are still are several differences between them.

Yes. This occurs quite frequently.

Yes. Corporations frequently have different classes of shares; each of these classes will frequently have different rights from one another.

Shareholders must meet no more than 18 months following the founding of the company. This is known as the first annual shareholders’ meeting. Following the first annual shareholders’ meeting, shareholders must hold meetings annually, at the very least. These annual meetings must be held no more than 15 months after the previous annual shareholders’ meeting. An annual shareholders’ meeting should always take place within six months’ of the company’s previous financial year end. Annual meetings can be replaced by resolutions so long as they are signed by all shareholders who are entitled to vote at the annual shareholders’ meetings. A corporation must keep records of the minutes of all shareholders’ meetings and of all resolutions signed by shareholders.

There are many decisions which may require the approval of shareholders. These may include, but are not limited to, the following:

• • Removing directors
• • Expelling shareholders
• • Changing the statutes of the company
• • Continuing the company to another jurisdiction
• • Selling ¾ of the assets of the company or more
• .

Based on the nature of the decision and based upon what the statutes or by-laws of the company provide, a super-majority (more than just 50% + 1) of shareholders may be required in order for a decision to be approved.

Companies occasionally make major decisions which minority shareholders disagree with but do not have enough votes to block. When this occurs, minority shareholders may have the right to dissent and demand that the corporation pay them fair market value for their shares. Examples of decisions which may trigger the right of dissent are:

• • Modifications to the company’s statutes
• • Continuing the company to another jurisdiction
• • Expelling a shareholder
• .

It is important that any shareholder wishing to exercise their right of dissent meet all of the required conditions.

A corporation must, at minimum, keep records of the following:

• • The articles and by-laws of the corporation
• • Any unanimous shareholders agreements
• • The minutes of any meetings or resolutions of the shareholders
• • The names, domiciles, and terms of office of each of the directors
• • A securities register
• • The records of any minutes of any meetings or resolutions signed by its directors
• .

Proper record keeping is extremely important and can frequently help prevent significant and costly problems down the road.