Let us help you make the most out of your business.We offer a number of high-quality legal services for small and medium sized business. Click on the links below to learn more about the categories of business legal services and the particular types of services that fall into those categories. If there is a type of legal service you’re looking for that isn’t on our website, feel free to contact us to find out if one of our business lawyers has experience in that area.
Running your own business is not simply a day job. It is your career and your life. Choices on how you organize your business may determine its success; those choices will affect not only your ability to finance the launch and progress of the business, but they will also affect your potential personal legal liabilities, tax bill, and your ability to take advantage of a range of commercial opportunities.
Some common forms of business organization include: proprietorships, corporations, partnerships, and trusts. Not all are appropriate for every type or size of business, and each carries with it special advantages and disadvantages. Good legal advice is the first step in determining whether a particular type of business model is appropriate for your particular situation.
Company Incorporation and Organization
A corporation (sometimes referred to as a ‘company’ or ‘limited company’), is a legal entity that is separate and distinct from its shareholders. A corporation can be incorporated under the laws of British Columbia, the federal laws of Canada, or under the laws of any other foreign jurisdiction. All foreign corporations (including Canadian federal corporations) intending on doing business in BC must become registered with the BC Corporate Registry. All corporations registered in BC, except Canadian federally incorporated companies, are subject to the terms of the BC Business Corporations Act. Canadian federally incorporated corporations are subject to the terms of the Canada Business Corporations Act. Although their names are the same, these two statutes have slightly different provisions, and care should be taken when deciding whether to incorporate under BC or federal legislation.
Advantages to Incorporating a Business
Incorporating a company is not appropriate for all people at all stages of business. It is more expensive than operating a proprietorship, and the record-keeping and reporting requirements under the Business Corporations Act increase operational complexity. That said, if your business is at the right stage, the advantages of incorporation may far outweigh the cost and complexity.
There are 5 main advantages to incorporating a business:
- Tax advantages:
- Canadian Controlled Private Corporations enjoy special tax rates on their business income.
- Income splitting strategies exist to draw money out of the company at a preferred tax rate that your spouse may have.
- Selling certain shares in an active Canadian corporation may qualify the seller for the lifetime capital gains exemption—this is not available to unincorporated businesses. The exemption, if applicable and depending on your financial circumstances, can save you over $150,000 in tax that would ordinarily be payable on any capital gain you made after selling your shares.
- Limitation of Liability
- The debts of the corporation are generally not the debts of the shareholders or directors, personally.
- The shareholders or directors of the corporation, personally, are generally not liable for the activities of the corporation, or for any harm that may accidentally arise from the activities of the corporation.
- Business Credibility
- Corporations add business credibility, and some businesses and financial institutions will provide corporate clients with product flexibility greater than that offered to unincorporated business owners.
- Contractual Efficiency
- An unincorporated business owner must enter into all business contracts personally unless that owner has Powers of Attorney instruments or Agency Agreements, authorizing others to enter into contracts on behalf of the business owner. Of course, such instruments may leave the business owner vulnerable to entry into unwanted contracts and personal liability.
- A corporation can have numerous authorized signatories, whose levels of signing authority are specially limited (or unlimited). This increases the business’s ability to delegate tedious contract-related tasks, and minimizes the business owner’s exposure to unexpected personal liability.
- Financing Opportunities
- A corporation can sell shares to raise operational financing. An unincorporated business owner cannot sell shares, and so is limited in financing opportunities. Of course, the sale of shares is governed by special securities regulations that must be complied with, but your business lawyer can help you find and prepare the proper exempted subscription documents or any necessary filings with the BC Securities Commission.
Remember, the Business Corporations Act (BC) requires that a corporation have and retain certain records. When we incorporate your new company, we ensure that you have all records required by law, and that you are in full compliance with the Business Corporations Act. Beyond that, if you use our firm as your registered and records office, we can do a 100% digital incorporation which streamlines the process by using Adobe EchoSign for secure and legal e-signature, makes it easier for you to access and share your incorporation documents with your accountant, banker, or other professional, and of course prevents the unnecessary consumption of paper.
Legally, a contract is an exchange of promises between two or more people to do or refrain from doing an act which is enforceable in court.
Okay, they can actually be a bit more complicated than that, but you get the idea. Contracts are at the heart of every business transaction. Not only does a good contract establish binding rights between people, it also causes you to turn your mind to important details that might otherwise be missed. Whatever your business contract needs may be, we can help, whether it’s simply reviewing and advising on a contract provided to you, or drafting one from scratch to protect your unique business needs.
Some common forms of business contracts we can help with include:
- Commercial leases
- Business purchase and sale contracts
- Consulting or employment agreements
- Shareholder agreements
- Partnership agreements
- Loan agreements
- Non-disclosure (confidentiality) agreements
- Contracts for services, such as management and operational agreements
- Rental agreements
BUYING AND SELLING A BUSINESS
Buying a Business
One of the primary goals of most businesses is growth. Of course, other common goals include marketplace innovation, creative expression, and community improvement. Common ways to grow your business (aside from simple market expansion) include making a strategic acquisition or merging with another business. An acquisition is when you buy another business and end up controlling it. A merger is when you integrate your business with another and share control of the combined businesses with the other owners. Mergers and Acquisitions are both ways to acquire new business opportunities.
Advantages of Mergers and Acquisitions
There are many good reasons for growing your business through an acquisition or merger. These include:
- Obtaining quality staff or additional skills, knowledge of your industry or sector, and other business intelligence.
- Accessing funds or valuable assets for new development.
- Increase overall business performance.
- Accessing a wider customer base and increasing your market share.
- Diversification of your business’s products, services, and long-term prospects.
- Reducing your costs and overheads through shared marketing budgets, increased purchasing power, and lower costs.
- Reduced competition.
- Organic business grown.
Business entrepreneurs tend to like the thrill of the jump. Good opportunities are often seen as fleeting. Still, being overly hasty and entering into an acquisition arrangement without proper investigation can lead to serious long-term complications—not to mention wasted money. It is essential to understand the background and risks of the business you are considering acquiring. Your business lawyers will be indispensable in helping you organize and implement an effective due diligence strategy. Such a strategy will not only include thorough background investigations, but also appropriate documents in the transaction.
Selling a Business
You’ve worked hard to build a business, but you’re at a point where you would like to sell. That point occurs at different stages in a business’s life cycle and can influence the decisions you make when selling. Some people are true entrepreneurs who love the thrill of building up a business but who are less passionate about running a business once it matures. Others have worked a business from start up to maturity and want to cash out to fund their retirement. Finally, some people just need to stop watering a fruitless venture and pay some bills. Whatever your motivation may be, our business lawyers can walk you through the process.
Asset Sale vs. Share Sale
One of the primary decisions sellers needs to make is whether they’re going to sell their business by selling off the individual assets, or by selling the company that owns those assets (assuming the business was not carried on as a sole proprietorship). The main two considerations in making this decisions are: 1) taxes; and 2) negotiating power over buyers.
Generally speaking, sellers prefer to sell the company because the sale of shares may qualify sellers to use their lifetime capital gains tax exemption, which could save them over $150,000 in capital gains taxes. Beyond that, selling the company is often a cleaner way to sever ties with the business.
On the other hand, buyers usually will prefer to buy the individual assets of a business. The requirement of a seller is usually to deliver the assets free of any liabilities associated with ownership of those assets so it gives buyers peace of mind knowing that there should not be any claims coming out of the woodwork. Buying a company does not always give them this assurance because there may be skeletons in a company’s closet. Furthermore, buying the individual assets allows buyers to depreciate those assets to reduce their future taxes (those assets often will have already been depreciated to nil value within the company so no significant further depreciation is possible if they remain assets of the company).
Despite those concerns, there are circumstances where buying a company may be more practical or tax efficient for a buyer. Examples would be where the company carries large losses that can be used to reduce taxes on future earnings, or where the company has one or more important contracts or licences that are not easily transferable.
Every incorporated business that has more than one owner should have a shareholder agreement. You work hard for your business, and a shareholder agreement will go a long way to protecting both your business assets and your piece of mind.
Nature of the Shareholder Agreement
A corporation is owned by its shareholders and managed by its board of directors. Strictly speaking, shareholders are passive insofar as they merely elect the board of directors which then actively manages the business affairs of the company. Shareholders do not themselves engage in any active management activities and have no further inherent rights to control how the business is operated. However, in many closely-held companies the shareholders and directors are the same people. In those situations a shareholder agreement determines the rights and responsibilities the shareholders/directors will have as between themselves and the corporation. Its central purpose is to provide systems for preventing and solving problems that may arise in the course of business. In that way the shareholder agreement is an indispensable tool for closely-held companies with more than one owner.
Advantages of a Shareholder Agreement
There are a number of advantages to having a shareholder agreement. Those advantages can include:
- Corporate principals turn their minds to important matters that might otherwise be overlooked. Such matters include:
- How key business decisions will be made;
- Whether the company will hold life insurance policies on the lives of the shareholders to afford repurchase of shares from the shareholder’s estate in the event of a shareholder’s death;
- Specific duties to be assigned to each shareholder, and whether they will be employees of the company;
- Whether shareholder loans to the company will be interest bearing; and
- Whether there should be ‘clawback’ powers permitting the company to re-acquire shares on certain events (such as the incapacity of a shareholder or the existence of a family dispute that could otherwise take control of the share);
- Certainty of conduct: the means for operating the company are clearly established, minimizing the opportunity for future misunderstandings;
- Binding dispute resolution systems: these can include access to courts, mandatory arbitration which could save time and money in some circumstances, or mechanisms for decision making where there is deadlock; and
- Protection of ownership interest and control of the company: the shareholder agreement will usually provide restrictions on transfers of shares, which prevents an ownership interest from ever being transferred to an undesirable third-party.
The unfortunate reality is that there are more businesses that suffer messy shareholder breakups than there are businesses that enjoy long successful relationships among their principals. In either case, a shareholder agreement will save time and money by providing key dispute resolution mechanisms and management conduct guidelines.