Download - Start-up Law
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AGENDA
1. Methods of Carrying on Business
2. Incorporation
3. Directors
4. Structuring
5. Financing
6. Shareholders/Partnership Agreements
7. Employment/Consulting Agreements
8. Intellectual Property
9. Third-Party Agreements: NDAs and Client Contracts
10. Additional Tips
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1. METHODS OF CARRYING ON BUSINESS
i. sole proprietorship
ii. partnership
iii. non-share capital corporation
iv. share capital corporation
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Sole Proprietor-ships
Partnerships Non-Share Capital Corporations
Share Capital Corporations
What is it?
Owned and operated by one individual.
Two or more persons carry on business in common with a view to profit.
No share capital, have “members” acting together for a “common purpose”.
Carries on business under its own name / has perpetual existence.
Liability Responsible for tortious acts, debts, contractual obligations of business.
Partners own business assets, responsible for liabilities of partnership, have authority to run business.
With a few exceptions, members are not liable for any liability of the corporation.
Rights and liabilities of corporation are not rights and liabilities of shareholders.
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Sole Proprietor-Ships
Partnerships Non-Share Capital Corporations
Share Capital Corporations
Taxes All income or losses must be included with income or losses from all other sources in one year.
Do not pay income tax; individual partners pay tax on income earned.
Generally exempt from federal income tax as a “non-profit organization”.
Income determined and taxed separately from that of its shareholders.
Good to know
Personal liability can be limited by contract or insurance.
Exist in two main forms - general partnership and a limited partnership.
Differences between not-for-profit organizations and charities.
Most frequently used method of carrying on business in Canada.
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2. INCORPORATION
• Need to file Articles of Incorporation (by right)
• Jurisdiction: federal or provincial
• Classes of shares
• As a trade-off, need to “maintain” your corporation
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3. DIRECTORS
A. Directors have a common law, fiduciary duty to:• Act honestly, in good faith and in the best interests of the
corporation• Exercise care, diligence and skill
B. Common mistakes:• accept gifts, spend money foolishly, be a passenger, simply
accept what’s told to you (by management or experts), sign cheques without adequate due diligence, miss or don’t prepare for meetings, don’t disclose conflicts of interest
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If fail to meet standard, directors can be sued by company/shareholders for breach of duty and can be personally liable for fines/damages:
a) Unpaid employee wages – 6 monthsb) Remittances to government agencies for HST & EE wagesc) Harassment and discrimination under the Human Rights Code –
can name personal defendantsd) Tort claims (e.g., inducing breach of contract, defamation) – ditto;
e) Health and safety violations – dittof) Failure to comply with legislation, including the Corporations Act
(Ontario) and the Canada Corporations Act
AND OTHERS… 200+
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4. STRUCTURING
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5. FINANCING
• Options track a company's stage of growth: • owner-funded• friends + family• crowdfunding (!)• angel investors (e.g., Dragons' Den)• VC• private equity
• Typical documents: • term sheet• subscription agreement• shareholder agreement • maybe agency agreement if agent
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• Types of securities: • common• preferred• convertible• loan warrants (aka kickers) • options
• Valuation – your guess is as good as mine... (...just kidding...sort of...)
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6. SHAREHOLDER (OR PARTNERSHIP) AGREEMENTS
• Top 5 issues:
1. Management and control
2. Transferability of shares
3. Forced sale events
4. Financing
5. Dispute resolution
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Employee• Duty of loyalty• Duty of confidentiality• Employer owns work product• Reasonable notice to terminate
Independent Contractor• Works for competitors• No implied confidentiality• Owns work product• Notice to terminate
Four-fold test (Montreal Locomotive, 1946)• Who controls the work?• Who owns the tools?• Worker has a chance of profit?• Worker has a risk of loss?
7. EMPLOYMENT (OR CONSULTING) AGREEMENTS
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8. i) INTELLECTUAL PROPERTY - COPYRIGHT
• protects literary, artistic, musical and dramatic expression (not ideas)• exclusive rights:
• produce or reproduce• publish• translate• telecommunicate• authorize
• Examples: this presentation, music, software
• Ownership - creator/employer; contractor• Registration - not required but can help enforce• Moral rights - no assignment, only waiver
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8. ii) INTELLECTUAL PROPERTY - PATENTS
• statutory monopoly to make, use and sell “inventions”
• 3 key tests:
1. new
2. useful
3. non-obvious
• registration required• prior art searches• keep secret until you file• full disclosure; limited term
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8. iii) INTELLECTUAL PROPERTY - TRADEMARKS
• brand names, logos, slogans• protection in association with specific products/services• registration not required, but:
• unregistered mark • registered mark
• Picking a good mark: distinctiveness, confusion• Protecting a mark:
• registration• maintain distinctiveness
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9. i) THIRD-PARTY AGREEMENTS - NDAs
• Doing business = sharing valuable secrets and confidential information (“CI”)
• When is an NDA appropriate?
• Timing
• Scope
• Protective Measures
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9. ii) Client Contracts - Getting Paid
4. Salvaging Phase: “A bird in the hand…”
3. Post-Sale Stage:“Keep your eye
on the ball”
2. Sale Stage: “There’s no timelike the present”
1. Pre-Sale Stage:“Early and Often”
4. Salvaging Phase: “A bird in the hand…”
3. Post-Sale Stage:“Keep your eye
on the ball”
2. Sale Stage: “There’s no timelike the present”
1. Pre-Sale Stage:“Early and Often”
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10. ADDITIONAL TIPS
1.Act like you are selling from Day 1
2.Investigate government programs and incentives
3.Get insurance: commercial and directors and officers
4.Develop policies/procedures/codes and stay current:
5.Practice good governance
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When to call a lawyer?
• Expertise• Not just an expense• Witty eye candy
Ted Maduri, Davis LLP
Tel: (416) 941-5412
E-mail: [email protected]