Our Corporate/Commercial team oversee legal matters governing the creation, financing, purchase, maintenance and sale of a business. Matters include Incorporations, Purchase and Sale of Business, Buy-Sell and Shareholders Agreements, Commercial Contracts, Security Agreements, Promissory Notes, Bills of Sale, Franchises and Litigation.
Team Members: Jim Oake, Bob Engels, Richard Der, Chau Nguyen, Cindy Kellett, Betty Chan

Frequently asked questions about Corporate/Commercial Law:
What are the advantages/disadvantages of a Sole Proprietorship?
What are the advantages/disadvantages of a Partnership?
What are the advantages/disadvantages of an Incorporation?
Who controls a Corporation?
What are the roles of Shareholders?
Can shares be transferred in Corporations?
What is a registered office?
Why does a Shareholders' Agreement have to be created?
What information will I need to provide to my lawyer?
What sort of other "red tape" is involved in carrying on a business?

What are the advantages/disadvantages of a Sole Proprietorship?

This is the simplest method of carrying on business, and it essentially means a businessman merely starts operating under any business name he chooses. Virtually no paperwork is required to commence operating as a sole proprietor, although it is advisable to register the name you wish to use, in order to prevent other people from taking that name at some subsequent time. It is also advisable to maintain separate financial statements for the business being conducted. The main disadvantages of carrying on business as a sole proprietorship are that there is no protection from personal liability against creditors and there are none of the tax advantages available to corporations.

What are the advantages/disadvantages of a Partnership?

This is a relatively simple method of carrying on business (for small groups), and it applies where more than one person owns the business being conducted. Although strictly speaking it is not necessary, it is strongly recommended that a document known as a Declaration of Partnership be filed at Corporate Registry, which declares that the business is being conducted as a partnership.

One important aspect of a partnership is that any one partner can bind the rest of his or her partners to legal contracts. That is, if one partner signs a contract on behalf of the partnership, then all of the partners are legally obliged to perform that contract. The implication of this is that if one partner signs a contract and breaches that contract, then all of his partners may be sued for that breach. It is now possible to create a "limited liability partnership", the effect of which is to reduce the exposure of some of the partners for the acts of other partners.

It is strongly recommended to have a partnership agreement prepared at the time business is commenced. The partnership agreement would address certain issues such as:

• What happens if one partner wishes to withdraw from the partnership?
• What happens if the other partners want to force another partner to withdraw?
• How are new partners admitted to the partnership?
• What happens if a partner becomes disabled or dies?
• Borrowing or spending limits of partners, voting rights, procedures for meetings, etc.

What are the advantages/disadvantages of an Incorporation?

This is usually considered the best overall way of carrying on a business. Incorporation means that the people who wish to carry on a business actually create a new entity known as a "Corporation" or "Company". This corporation is viewed under Canadian law as being a separate person, and it has all the rights and abilities that a real person has, unless the incorporators decide to restrict these abilities.

One of the main advantages of a corporation is that it protects the business owners from personal liability. A separate person (the corporation) is created to carry on the business (signing contracts, etc). If the business turns out to be less profitable than anticipated, and creditors sue to collect debts, then the corporation is sued, and the individual shareholders are protected by the "shield" the corporation creates.

The second main advantage to incorporation is that corporations engaged in active business are taxed at a lower rate than individuals. The tax savings can be considerable, and if the corporation is profitable, they will more than offset the costs of incorporation in a short period of time.

Who controls a corporation?

A corporation is controlled by its directors and officers. Directors are the people who set the long range plans of the corporation, and may meet only once a year (although they can meet more frequently if they wish) to discuss major transactions and the general direction of the corporation. A majority of directors must be resident in Canada. The officers are the people who have the day to day control of the corporation, and are the ones making all of the hundreds of decisions necessary to operate the business. In smaller companies, usually the directors and officers are the same people.

The third level of control in a corporation are the shareholders. The shareholders are the owners of the corporation. Usually, shareholders pay a predetermined amount for their shares, and this money may be used to finance the corporation. In large corporations that are widely held and whose shares are publicly traded, shareholders have no role in the day-to-day operations of the corporation. In small corporations, shareholders are usually one and the same people as the officers and directors.

What are the roles of Shareholders?

The shareholders are required to meet once a year for the purposes of approving the financial statements of the corporation and electing directors. If shareholders are dissatisfied with the performance of the directors, the shareholders can remove them and appoint new directors. Ultimately, the control of the corporation rests with the shareholders, although they have little or no role in the day to day operations of the corporation.

Can shares be transferred in Corporations?

In smaller corporations, the shares of the corporation cannot be transferred without the consent of the directors. If the shares of the corporation are going to be offered to the public and publicly traded, then there is a large amount of government regulation with which to comply, and the expense involved in starting up such an organization is considerable. The overwhelming majority of most new corporations are set up as private (i.e. not publicly traded) corporations.

What is a registered office?

It is necessary to select an official address, known as the registered office, for the corporation. This must be an address within Alberta. This is the address to which government documents are forwarded, and if the corporation is ever sued, legal documents are forwarded to that address as well. It is advisable to have as the registered office a law firm, because law firms realize the importance of the documents they are receiving and tend to be very stable and static.

Why does a Shareholders' Agreement have to be created?

It is advisable to have an agreement drawn up amongst the various shareholders of the corporation governing various matters such as:

• What happens to his or her shares when a shareholder dies?
• What happens when a shareholder becomes disabled?
• How does a shareholder dispose of shares if he or she wants to quit the corporation?
• Setting limits on spending or borrowing powers of the directors.
• How to buy out one shareholder if the other shareholders no longer want to carry on business with him or her.

It is strongly recommended that such an agreement be prepared at the outset of business, because it will often be too late to resolve such issues if problems happen to arise between shareholders at some later stage.

What information will I need to provide to my lawyer?

Here is a checklist of information we require:

1. Name, Address and Telephone of contact person
2. Type of business (sole proprietor, partnership or corporation?)
3. Name intended to be used for business or corporation (choose more than one)
4. Date business was or will be commenced
5. Description of business
6. Name, address, telephone number of all partners (Partnership), directors and shareholders (Corporation)
7. Name of President, Vice-President, Secretary, Treasurer (Corporation)
8. Is a Shareholders Agreement / Partnership Agreement required?

What sort of other "red tape" is involved in carrying on a business?

Business affairs in Canada are highly regulated by government. There are government regulations concerning employee safety, hours of work, minimum wages, storage of chemicals, types of businesses that can be carried on in given areas, etc. These government regulations should be investigated in more detail once a particular type of business has been decided upon. It is usually possible to conduct these investigations without involving a lawyer.

It is also necessary to set up accounts with various government departments. The employer is responsible for making certain payments into these accounts. For example, it would be necessary to set up three accounts with Canada Customs and Revenue Agency. One account would be created to pay corporate income tax. Another account would be created to pay deductions from employee's salary. It is the employer's responsibility to deduct a portion of income tax from the employee's paycheque and to pay those deductions to the government. If the employer fails to do so, the directors of the employer corporation may be held personally responsible for those deductions. A third account would be created to facilitate the collection of the Goods and Services Tax (GST).

Similarly, accounts would have to be opened with the Employment Insurance Commission (E.I.C.) and the Workers' Compensation Board (WCB). The E.I.C. is a government body established to pay an employee's wage loss benefits if he or she happens to lose his or her job. Each employee pays into the fund while they are working. Again, it is the employer's responsibility to see that these payments are deducted from the employee's paycheque and paid to E.I.C. Similarly, the WCB is a government body established to protect workers if they are injured and unable to work as a result of an accident on the job. Again, monthly installments are made by the employer to WCB in amounts prescribed by the government. In the case of WCB, these amounts cannot be deducted from the employee's paycheque but must be paid by the employer directly.