Business Law

One of the initial decisions faces business is selecting the right type of legal structure. In the case of corporations, if there is more than one shareholder, it is important to have a shareholder agreement drafted early so that the shareholders can come to a fuller understanding of how the corporation will be governed and how to avoid costly problems later one. In the case of partnerships, it is important that a partnership agreement is drafted ideally before business is commenced or as early as possible. Other legal structures that should be consider are franchising and distributing and joint venture agreements.

Consider now the following topics:

1. Incorporating and Selecting the Right Type of Business
2. Shareholder Agreements
3. Partnership Agreements
4. Buying or Selling a Business
5. Franchising, Distributing & Licensing
6. Contracts
7. Commercial and Residential Leases
8. joint venture agreements
9. intellectual property issues as well as
10. other services

1. Incorporation and Selecting the Right Type of Business:

   The following is a general discussion of the various types of business types to assist you with legal counsel in selecting the business type right for your endeavor:

   1. The Sole Proprietorship:

   This is the simplest form of business and is created when an individual starts to carry on business on his or her own without forming a partnership, corporation or some other form of business. It is used for smaller business. A sole proprietorship must be registered in Ontario when the name used in not the name of the individual ie. John Smith Painters would be OK; however, One Guy Painting would require registration: section 2(2) of the Business Names Act (OBNA). If you operate a business as a sole proprietorship in Ontario without registering and the business not being in your name, then you are subject to a $2,000 fine: 10(2) OBNA. What are the major advantages and disadvantages of the sole proprietorship?

   The advantages are:

   • costs
   • easy to do
   • can use to obtain business license

   The disadvantages are:

   • the owner is personally liable
   • lack of prestige
   • difficult to raise money
   • owner cannot be an employee.
   2. Partnership:

   Partnerships are created when two or more persons carry on business together with a view to a profit: s. 2 Ontario Partnerships Act. (OPA) (with or without a partnership agreement) or with a partnership agreement. Partnerships are not separate legal entities and hence each of the partners are personally liable and responsible. What are the major advantages and disadvantages of the partnership:

   The Major Advantages Are:

   • costs
   • easy of use
   • can use to obtain business license
   • can grow with the number of partners
   • Ontario Partnerships Act
   • use of Corporation can be used to shift risk to non-owners

   The Major Disadvantages Are:

   • personal liability of the partners
   • not a separate legal entity
   • each partner is liable for each contract signed by the partership
   • no separation of management and business
   3. Limited Partnership:
   In limited partnership, at least one partner (called the General Partner) has unlimited personal liability whereas at least one of the other partners has limited liability and is called a limited partner. The limited partner liability is usually limited to the amount of his investment.
   4. Corporation:
   Corporations are created by incorporating which is achieved by filing the appropriate forms and fees with the appropriate government organizations. Incorporations can be created at the federal level (pursuant to the Canada Business Corporation Act (CBCA) or at each of the provinces ie. in Ontario it is pursuant to the OBCA. A corporation can be a numbered company or can be a name company in which a NUANS search is required. The name may initially be refused by the registrar; however, this may be overcome by an argument - you should hire a lawyer to do this. Corporations are separate legal entities and hence provided limited liability, to a certain extent to shareholders. What are the advantages and disadvantages of a corporation:
   The Major Advantages Are:
   • separate legal entity - corporation can own property, carry on business etc.
   • can hire one of the shareholders as an employee
   • rights and obligations of the corporation and not those of the shareholders
   • shareholders have specific rights
   • good investment tool
   • separation of ownership and management
   • limited liability to limit of shareholder investment
   • bound by agents (ie. directors, officers, agents)
   • shareholder can be an employee and a creditor due to separate legal entity
   • directors and officers duties
   • corporate democracy - shareholders elect directors and officers
   • shareholder remedies in the event of management duties not performed

   The Major Disadvantages Are:

   • costs and complexity of incorporation
   • can be criminally liable
   • time in negotiating shareholder agreement
   5. Joint Venture:

   Joint ventures occur when two or more persons combine their resources for a limited purpose and or limited time. It can take the form of a corporation or partnership or other forms.

   6. Co-ownership:
   relationship among persons in which they own title to some property the usual example is where an apartment is held as a co-ownership and each owner has a separate interest in the property and can sell that interest.
   7. Licence:
   is a contractual relationship in which intellectual property (ie. trade mark, copyright etc) is licenced to persons ie. franchise.
   8. Franchise:
   is a contractual relationship which defines aright to operate a system in return for fees which are defined by the Franchise Agreement.
   9. Strategic Alliance:
   emcumbaces awide variety of relationships which involve alliance working together ie.an agreement to do research, share info, market, develop
   
   
2. Shareholder Agreement:
is a written agreement entered into by some, and usually all, of the shareholders of a corporation. Although each shareholder agreement is unique to each company and its shareholders and should be drafted by a lawyer specfically for its situation, most of these documents deal with the same basic issues. It is important to avoid misunderstandings and litigation, to have a shareholders agreement negotiated and signed at the creation of the Corporation or as soon as possible after. The major clauses to be considered are as follows:
• Parties: The legal names of the shareholders and the Corporation
• Definitions: contains definitions.
• Interpretation: defines how terms in the agreement will be interpreted.
• Affairs of the Cororation: defines how the Corporation is to be governored and who is to be directors and officers. The shareholder agreement will define the Corporation's important or major Decisions that cannot be made without the prior consent of shareholders holding a pre-determined percentage i.e. 75% of the voting shares of the corporation. Example of these major decisions are: the sale of all or substantially all of the corporation's assets, the purchase or sale of real estate or an important change in the nature of the corporation's business, its objectives or the relocation of its registered office.
• Banking: defines who can sign cheques and take out loans and open and close accounts.
• Loans & Guarantees: Lists the loans and shares and shareholdes of the Corporation.
• Draws from and payments to the Corporation: defines how the shareholders are allowed to draw from the Corporation and make payments to the Corporation whenneed.
• guarantees: lists who has given guarantees on behalf of the Corporation and defines which shareholders must give guarantees on behalf of the Corporation.
• Pre-emptive Rights to Share Offerings: each current shareholder will be offered the right to acquire his proportional share of any new shares that are issued by the corporation
• Shot Gun Rights: Provides a mechanism whereby one shareholder submits an offer to purchase all the shares held by the other shareholder(s). Each shareholder receiving the offer will then have a choice to either sell his shares at the offered price or purchase the shares of the shareholder making the offer at the identical price and conditions offered. The theory behind this method is that the shareholder making the initial offer cannot offer to purchase the shares of the other shareholder(s) at a low price because he is giving the others an option to purchase his shares.
• RIght of First Refusal: requires that a shareholder wishing to sell his shares may do so only after having offered them first to existing shareholder(s).
• Piggy Back: gives a shareholder an option to sell his shares to a third party purchaser who has offered to purchase the shares of any one of the shareholders for the same price and conditions.
• Incapacity & Disability of Shareholder: defines what happens when.
• Death of Shareholder: defines what happens when.
• Insurance: defines what general and directors liability insurance.
• Arbitration: provides specific rules for arbitration when shareholders cannot agree.
• Confidentiality Clauses: prevent a shareholder from disclosing to any third partyany confidential information of which he has knowledge or has acquired as a result of being a shareholder of the corporation.
• Non-Competition: prevent a shareholder from competiting with the Corporation in the same or simiar business in a specific territory for a specific period of time.
• Family Law Issues: deals with family law issues as they effect the shareholders. General Clauses: details general clauses such as jurisdiction.
3. Partnership Agreements
[Check Back Later For Updates]
4. Buying or Selling a Business
5. Franchising, Distributing & Licensing
6. Contracts
7. Commercial & Residential Leases
8. joint venture agreements,
9. intellectual property issues as well as
10. other services

• Incorporating & Selecting the Right Type of Business
• Shareholder Agreements
• Partnership Agreements
• Buying or Selling a Business
• Franchising, Distributing & Licensing
• Contracts
• Commercial & Residential Leases
• Joint Venture Agreements
• Intellectual Property Issues

The information provided should not be regarded or relied upon as the provision of legal advice or a substitute for individual legal advice. The information published on this site is provided for educational and reference purposes only. It is not intended to be used as a substitute for specific legal or other professional advice. You should not act upon the information without seeking professional counsel. Legal advice must be tailored to the specific facts and circumstances of each case. Aspects of the law also vary between jurisdictions so some of the information provided

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