Building Blocks Structuring and Organizing Your Company JANUARY 21, 2016 A N D R E W H E N N I G A R & E M M A N U E L L E F R E D E R I C - P O PA – M E P B U S I N E S S C O U N S E L

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Agenda

q  BasicBusinessForms

q  CapitalStructure

q  Shareholders–RightsandRisks

q  BoardsofDirectors–Du;es

q  Shareholders’Agreements

q  Ques;ons

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You

Basic Business Forms – Sole Proprietorship

IncomeExpensesLiabili7esRiskTaxRate

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Basic Business Forms – Limited Partnership

GeneralPartner

Managementauthority

Unlimitedliability

FiduciarydutytoLPs

LimitedPartnersNo-managementauthority

Limitedliability

Taxpassthrough

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Basic Business Forms – CorporaRons Nolimitsonmanagementauthority/exercisedthroughdirectorelec7on

Managedbyboardofdirectors

Limitedliability

Nofiduciarydutyasshareholder

D&Ofiduciarydu7estothecompanySeparatetaxpayer

YourCoInc.

Shareholder1 Shareholder2 Shareholder3

•  Corporatelaw•  Bylaws/ar7cles•  Shareholders’

agreement?

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CorporaRons – Federal or Provincial? FederalJurisdic7on

CanadaBusinessCorpora7onsAct25%ofdirectorsmustbeCanadianresidentsAutoma7cna7on-widenameprotec7onAbilitytocarryonbusinessanywhereinCanada(separateregistra7onmayberequired)

BCJurisdic7onBCBusinessCorpora7onsActNodirectorresidencerequirementWaiverofAGMandproduc7onoffinancialstatementspermi^edIncreasedflexibilityspecialresolu7onapprovalthreshold(662/3%to75%)Slightlycheapertoincorporate

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Capital Structure

SeniorSecuredDebt

SeniorUnsecuredDebt

SubordinatedDebt

HybridSecuri7es/PreferredShares

CommonEquity

Priorityon

liqu

ida7

on

Stockop7ons

Mezzanine

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Capital Structure: Share Classes Moreshareclasses=morecomplexity–carefullyconsiderwhatisnecessary

Shareswithnovo7ngrightsmayhaveclassvo7ngrightsunderlawforcertaintransac7ons

Sharestructurecanbemodifiedover7me

Commercial/regulatoryconsidera7onsmaydictateclassrequirements

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Capital Structure: Share Classes Start-Up

Class Vo7ng Dividends Liq.Pref. Ves7ng Purpose

ACommon Yes Yes None Yes Foundershares/commonequity

BCommon No Yes None No Employeeop7onplan

Angel/VentureStage

Class Vo7ng Dividends Liq.Pref. Ves7ng Purpose

ACommon Yes Yes None Yes Foundershares/commonequity

BCommon No Yes None No Employeeop7onplan

CCommon Yes Yes 2x No Angelinvestorround

APreferred Yes Yes–fixed% 2x No VentureCapitalround

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Shareholders – Rights

ShareholderRightsVo7ng

Dividends

RighttoBringSuit

Administra7veRights

Ownership/Liquida7on

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Shareholders –Risks

ShareholderRisksDilu7on

LimitedLiquidity

InvestedCapital

MinorityPosi7on

Posi7oninCapitalStructure

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Board of Directors  Responsibleformanagingorsupervisingthemanagementofthebusinessandaffairsofthecompany

Shareholders

Directors

Officers

Elect

Appoint

Daytodayopera7ons

Strategicoversight/non-ordinarycourseac7ons

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Board of Directors – Roles and ObligaRons  Maximizeshareholdervalue

 Appointandmonitorperformanceofofficers

 Determinestrategicdirec7onandgoalsforthecompany(withinputfrommanagement)

 Developandimplementcontrolsoverfinancialrepor7ng

 Developandimplementpoliciesforcompensa7on,corporategovernance,externalcommunica7ons,andaudi7ng(ifarepor7ngissuer)

 Approvefinancialstatements

 Approvefundamentalcorpora7onac7ons

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Officers – Roles and ObligaRons  Specificrolessetoutinjobdescrip7onsapprovedbyboardand/oremploymentagreements.

 CEO:daytodayopera7onalcontrol;goalsepng;fundraising;oversightofallotherofficers.

 CFO:financialrepor7ng;financialcontrols;budge7ng;A/R,A/P. VPs:principalresponsibilityforgivenfunc7onalarea.

 Secretary:corporategovernancecompliance;assisttheboardofdirectors.

 Note:Corporatelawdoesnotspecifypar7cularofficerrequirements.

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Board of Directors and Officers - DuRes  Directorsarefiduciaries:theyhavethelegaldutytoactprimarilyforanotherperson’sbenefitinmanagingtheassetsandopera7onsofthecompany.

DutyofCare

DutyofLoyalty

FiduciaryDu7es DutyofConfiden7alityDutyofCandour

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Board of Directors and Officers – Duty of Care

DutyofC

are

Exercisethecare,diligenceandskillthatareasonablyprudentindividualwouldexerciseincomparablecircumstances.Actonaninformedbasisaqerdueconsidera7onoftherelevantmaterials,appropriatedelibera7onandinput,asrequired,fromexpertadvisors.

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Board of Directors and Officers – Duty of Loyalty

DutyofLoyalty

Acthonestlyandingoodfaith.Actwithaviewtothebestinterestsofthecompany.

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Board of Directors – Personal Liability Unpaidwages.Improperdividendpayments.Issuanceofsharesforinadequateconsidera7on.Repurchaseofsharesresul7ngwheninsolvent.Improperpaymentofindemnitytoadirectororofficer.Paymentofanunreasonablecommissiontopurchaserofshares.WithholdingundertheIncomeTaxActandExciseTaxAct(GST). 18www.meplaw.ca

Board of Directors – PracRcal ConsideraRons Ar7cles/bylawssetoutminimumrequirements(number,mee7ngfrequency,recordkeeping).Businessjudgmentrule.Duediligencedefense/relianceonexperts.Indemnifica7on.

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Shareholders’ Agreements Setshareholderrightsbeyondminimumsprovidedbycorporatelaw.Usually,notalways,allshareholdersarepar7es.Minorityshareholderprotec7ons.Majorityshareholderrightsandlimita7ons.

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Shareholders Agreements - Terms

Restric7onsonTransfer

RightofFirstRefusal/Offer

DragAlong

TagAlong

Governance

BoardComposi7on

SpecialApprovalThresholds

TieBreakProcedure

Financing

Ini7al/followoncontribu7ons

Pre-emp7veRights

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Exits

ApprovalRights

Puts/Calls

TriggeringEvents

IPOConsequences

Non-Compe77on

Administra7ve

Informa7onRights

Confiden7ality

Amendments

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MEP Business Counsel   AtMichael,Evrensel&PawarLLP(MEPBusinessCounsel),weapproachtheprac7ceofbusinesslawdifferently.Weareonamissiontochallengetheinherentinefficienciestypicallyfoundinconven7onal“BigLaw”firms,pushingtorejecttheinflexibleandexpensiveservicemodelsfoundatthosefirms.

  Asaguidingprinciple,wearecommi^edtoprovidethesamehigh-qualityexper7seofatop-7erna7onallawfirm,butdeliveritwiththeinnova7on,cost-efficienciesandpersonala^en7venessyou’dexpectfromdedicatedin-housecounsel.

  AsaCanadiancorporateandentertainmentlawfirmwithextensiveinterna7onalexperience,ourcontemporarymodelissimplebutfarfromcommon:

  World-ClassExperience–Ourteamofhighlyexperiencedandaward-winninglawyers–withtrainingandexperiencefrominterna7onallyrecognizedfirmsinLondon,NewYork,Toronto,Montreal,BeijingandVancouver–provideworld-classbusinessandentertainmentlegalservicestosomeofNorthAmerica’smostnotablecompanies.

  Client-CentredApproach–Clientsnowdemandmoreoftheirlegaladvisors,whichisdrivingachangeinthelegalserviceslandscapeinCanada,andrightlyso.Businessesexpectgreatervalueatsensibleprices,whichisachievedbyreceivingprac7callegaladvicetailoredtoadvancetheirgoals.AtMEPBusinessCounsel,wehaveanunwaveringcommitmenttoyourbusiness,withagoaltoprovideyouwithbespokelegalservicesthatputyourrealneedsfirst.

  Business-FirstThinking–Wehaveauniquecombina7onofestablishedlegalexper7seandcommercialunderstanding.Effec7vebusinesscounselshouldhelpdriveyourcommercialsuccessbycraqingsolu7ons,notbysimplyiden7fyingconstraints.AtMEPBusinessCounsel,weprideourselvesonaligningouradvicewithyourcorebusinessobjec7ves,offeringsolu7onstoovercomeobstacles.Aqerall,weareentrepreneursinourownright.

  FlexibleValue-BasedPricingandAlterna;veFeeArrangements–Yourbusinessneedsareunique.That’swhyMEPBusinessCounselisflexiblewhenitcomestopricingandfeearrangements.Unhinderedbytherigidityoftheconven7onal“biglaw”firmmodel,MEPBusinessCounselisabletoworkwithyoutorespondtothoseuniquedemands.Regardlessofthefeearrangement,atthecoreofeachofourmandatesisacommitmenttoprovideexcep7onalvalueandbuildlas7ngbusinessrela7onships.

  www.meplaw.cawww.facebook.com/mepbusinesscounsel@meplawMEPBusinessCounsel(604)669-1110

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SR&ED

Presented by Jeff Christie, Partner, Boast Capital

OUTLINE

I.  Overview of the SR&ED Program II.  Benefits of Claiming SR&ED III.  CRA’s Requirements IV.  Do’s and Don’ts V.  Q&A

I. OVERVIEW OF THE SR&ED PROGRAM

WHAT IS SR&ED?

APPLICABLE INDUSTRIES

QUALIFYING CRITERIA

Must meet three criteria to qualify for SR&ED:

1.  Technological Challenges 2.  Technological Uncertainty 3.  Technical Content or Iterations

ELIGIBILITY The CRA’s 5 questions: 1.  Was there a scientific or a technological uncertainty that could not

be removed by standard practice/engineering? 2.  Did the effort involve formulating a hypothesis specifically aimed at

reducing or eliminating the uncertainty? Continued…

ELIGIBILITY 3.  Was the adopted procedure consistent with the total discipline of

the scientific method, including formulating, testing, and modifying the hypothesis?

4.  Did the process result in a scientific or technological

advancement? 5.  Was a record of the hypothesis tested and results kept as the

work progressed?

II. SR&ED BENEFITS

WHO CAN CLAIM?

SMEs = defined as generating less than $500K taxable net income in the prior fiscal year.

SR&ED BENEFITS Return rates for SME CCPCs:

SR&ED BENEFITS Return rates for non-CCPCs:

IV. CRA REQUIREMENTS

TECHNICAL DOCUMENTATION CRA requires that SR&ED documentation must: §  Have been documented at the time the work was completed §  Highlight technical obstacles or challenges §  Be dated

TIME TRACKING

FINANCIAL STATEMENTS

WHEN TO CLAIM?

18 Months Past Fiscal Year End § Current Claim = Within 6 mo §  Amended Claim = Within 7 to 18 mo

TURNAROUND TIMES

From receipt of a complete claim:

§ CCPC Current Claim – 4 months § CCPC Amended Claim – 8 months § Non-CCPC Claim – 12 months

CRA REVIEWS

CRA Review ≠ Tax Audit Multiple types of Reviews:

§ Desktop §  Financial §  Technical & Financial §  First Time Claimant Advisory Service (FTCAS)

IV. THE DO’S AND DON’TS

THE DO’s

Do: §  Pay yourself and staff §  Start time tracking and proper documentation

now §  Incorporate your company

THE DON’T’S

Don’t: §  Underestimate the importance of

documentation §  Focus on the business opportunity §  Leave SR&ED claims until the last minute

JEFF CHRISTIE PARTNER 403 589 2809 | jchristie@boastcapital.com BoastCapital.com | @BoastCapital | @ChristieLuge

Presenter Bios

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  CalltotheBarNewYork,2007Bri7shColumbia,2012AreasofExper;seMergersandAcquisi7onsCorporateFinanceCorporateandCommercialTechnologyStart-upCompaniesVentureCapital/PrivateEquityEduca;onB.Comm,McGillUniversity,2003J.D.,UniversityofToronto,2006

@meplaw

AndrewHennigar

 

Andrew Hennigar (ahennigar@meplaw.ca; (604) 891-1184) Senior Associate Andrew’sprac7cefocusesonmergers&acquisi7ons,privateequityandventurecapitaltransac7ons,corporatefinance(bothpublicandprivate)andgeneralcorporateandcommercialma^ers.Andrewrepresentsabroadrangeofclients,includingstart-ups,growthstagecompaniesandmatureprivateand public companies. Andrew has experience in share and asset purchases, dives7tures, equity offerings, spin-outs, restructuring transac7ons,shareholderma^ers,securi7es lawandTSX/TSX-Vcomplianceandcorporategovernance.Andrewhasalsorepresentedpurchasersofassets throughbothCanadianandUSbankruptcyproceedings.

Prior to joiningMEPBusinessCounsel,Andrewprac7ced in the securi7es groupof theVancouverofficeofBlake,Cassels&Graydon LLPand in themergers&acquisi7onsgroupoftheNewYorkofficeofPaul,Weiss,Rivind,Wharton&GarrisonLLP.

SelectedRepresenta;veWork§  RepresentedShoes.comTechnologiesInc.initsacquisi7onsofalloftheoutstandingsharesofShoes.com,Inc.fromasubsidiaryofCalaresInc.,

andRicherPoorer,Inc.fromitsfounders.§  RepresentedanAlberta-basedconstruc7onmanagementcompanyinitsacquisi7onofalloftheoutstandingsharesofaVancouver-based,family

ownedconstruc7onmanagementcompany.§  RepresentedThunderbirdFilmsInc.initsacquisi7onofallofthesharesofAtomicCartoonsInc.§  RepresentedViableHealthworks(Canada)Corp.initsacquisi7onoftheAIMHealthGroup.§  RepresentedCardiomePharmaCorp.initscrossborderacquisi7onofCorrevioLLC.§  RepresentedWebtechWirelessInc.inthesaleofitsNextBusdivisiontoCubicTransporta7onServicesInc.§  RepresentedLMEricssonandthe“RockstarConsor7um”initsacquisi7onofNortelNetworks’patentporwolio.§  RepresentedLMEricssoninitsacquisi7onoftheassetsofNortel’sCDMAandGSMbusinesses.§  RepresentedWebloyaltyHoldings,Inc.inconnec7onwiththeshareforsharemergerwithandintoasubsidiaryofAffinionGroupHoldings,Inc.§  RepresentedShoes.comTechnologiesInc.initsnon-brokeredprivateplacementofcommonsharesforgrossproceedsof$45million.§  RepresentedGeneralAtlan7cLLCinconnec7onwithitspreferredequity investments inPeixeUrbano, Inc.,GiltGroupe, Inc.,RedVenturesLLC

andothers.

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Presenter Bios

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  CalltotheBarAlberta,2012Bri7shColumbia,2014AreasofExper;seMergersandAcquisi7onsCorporateFinanceCorporateandCommercialTechnologyStart-upCompaniesVentureCapital/PrivateEquityEduca;onB.Comm,ConcordiaUniversity,2003J.D.,UniversityofBri7shColumbia,2011

@meplaw

EmmanuelleFrederic-Popa

 

Emmanuelle Frederic-Popa (epopa@meplaw.ca; (778) 331-0286) Associate EmmanuelleFrederic-PopaisanAssociateatMEPBusinessCounsel.Emmanuelle’sprac7ceencompassesawidevarietyofcorporateandcommerciallaw transac7ons,witha focusonmergers&acquisi7ons, corporategovernanceandfinancings.Emmanuelleadvisespublicandprivatecompanies inCanadianandcross-bordermergers&acquisi7ons,financings,securi7esofferings,technology-relatedtransac7onsandregulatorycompliance.Shealsoregularlyassistsclientsongeneralcorporatema^ersandcorporategovernanceissues.

PriortojoiningMEPBusinessCounsel,EmmanuelleworkedintheCalgaryofficeofBlakeCassels&GraydonLLPrepresen7ngbothprivateandpubliclytradedissuersandac7ngonbehalfofunderwritersanddealersinawidevarietyofprivateandpublicofferingsofdebtandequitysecuri7esaswellasmergers&acquisi7ons.

Priortoprac7singlaw,EmmanuellewasanInforma7onTechnologyprojectmanageratJohnson&Johnsonandhasexperienceintheconsumer,medicaldevicesandpharmaceu7calindustries.

SelectedRepresenta;veWork

•  RepresentedShoes.comTechnologiesInc.initsacquisi7onsofallofthesharesofSea^lebasedOnlineshoes.com,St.LouisbasedShoes.comandCaliforniabasedRicherPoorer,Inc.

•  RepresentedaBri7shColumbiabasedonlineretailerinconnec7onwiththeissuanceof$10millionsecuredconver7bledebentures.•  RepresentedThunderbirdFilmsInc.,aVancouverbasedfilmandtelevisionproduc7oncompany,inconnec7onwithitsacquisi7onofallofthesharesof

GreatPacificMediaInc.andSodaPicturesLimited.•  RepresentedaBri7shColumbiabasedfoodandbeveragesdistribu7oncompanyinthesaleofitsassetstoaNewYorkbasedprivateequityfund.•  Representedapubliclytradedcompanyonits$69-millionacquisi7on,throughaCanadiansubsidiary,ofaprivateAlberta-basedEngineering,Procurement

andConstruc7onManagementcompany.•  Representedthetargetinconnec7onwithits$15.1-billionacquisi7onbyaforeigncompanyandsubsequentrestructuring.•  Representedamajorpubliclytradedenergycompanyinconnec7onwithitsofferingsofseniornotesofanaggregateofUS$2.25-billionunderashelf

prospectus.•  RepresentedapubliclytradedAlbertabasedcompanyonnumerouscross-borderprivateequitycommitmentsinprivatetechnologycompanies.•  Representednumerousjunioroilandgascompaniesonapproximately$220millionofaggregateprivateequitycommitments.

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QuesRons?

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