Business Law

>>>>Business Law
Business Law2018-11-22T16:05:53+00:00

Huckvale LLP advises clients on all corporate and commercial law aspects of business. See below for a partial list of the types of services we can provide and issues we can advise on, and with your inquiries.

Corporate:

  • Initial choice of the legal form of business (proprietorship, partnership or corporation)
  • Incorporation (if that is the chosen form) and structuring of that start-up business format
  • Re-organizations of existing corporate entities
  • Equity financing and other forms of investments (including seed, angel and venture capital financing) in new or existing businesses, including due diligence
  • Purchase and sale of existing businesses, including due diligence
  • Annual general meetings, special meetings, directors’ meetings
  • Directors’ duties and liabilities
  • Shareholders’ Agreements, Partnership Agreements, Joint Venture Agreements
  • Employee equity participation, incentive, stock option arrangements

Commercial:

  • Within the business:
    • Employment law matters
      • Employment agreements
      • Severance negotiations
      • Independent contractor agreements
      • Non-disclosure and Confidentiality agreements
      • Non-competition and non-solicitation agreements
  • Between the business and its customers and suppliers:
    • Review, negotiation and enforcement of:
      • Supply contracts — for tangible goods and intangible property including software
      • Service contracts
      • Commercial real estate leases
      • Independent contractor agreements
      • Franchise, License and Distribution agreements

To assist you with any of your Business Law concerns, please contact one of our lawyers who will be happy to provide you any guidance or assistance you may require.

Contact our

Business Law Team

Business Law FAQ

Sole Proprietor

A Sole Proprietor is someone who goes into business on their own without forming a Partnership and without incorporating a Corporation. In other words, in law there would be no distinction between the Proprietor and the business itself.

The individual proprietor is personally responsible to perform all contracts of the business. All assets and debts are the personal responsibility of the sole proprietor. Any income or loss from the business is included in the proprietor’s personal income tax. The individual proprietor is personally responsible for all torts committed within the business, including torts committed by employees.

– Simplest and quickest way to start a business.
– Individual has full control over the business.
– All the profits are the personal profits of the individual.

– Individual is personally liable for every legal action taken against the business.
– Individual’s personal assets may be seized by creditors to satisfy business debts.
– Individual is personally liable for every loan incurred for the business.

A Sole Proprietor must register a Trade Name if the business name used is something other than the individual’s own name. However, the registration of a Trade Name does not prevent another individual or entity from registering the exact same Trade Name or one similar to it.

Partnership

The Partnership Act of Alberta defines a Partnership as the relationship that subsists between persons carrying on business in common with a view to profit. It may be useful to note that in this definition, a corporation can be a partner in a Partnership.

Unlike a Corporation, a Partnership is not a legal entity. Each partner is fully and completely personally liable to the other partners in the Partnership. The continued existence of the Partnership depends on the continued participation of the partners.

– A Partnership allows multiple individuals to share in the start up costs or the overhead associated with a business.
– A Partnership can also be less expensive to start than incorporating a Corporation.

The partners are personally liable for the debts of the Partnership. In other words, any contract or debt in the name of the Partnership can be personally enforced against each or all of the Partners on an individual basis. This may even occur if a contract is entered into by one of the partners without the knowledge of the other partners if the contract relates to the business of the Partnership.

– The Partnership Act of Alberta requires that a declaration be submitted containing amongst other things, the names and occupations of the partners and the name of the Partnership.

Corporation

A Corporation is a legal entity with the capacity, and in most cases, the rights, powers and privileges of a natural person.

– The Corporation can own property and can have its own debt.
– The Corporation has Shareholders and Directors.
– The Corporation can perpetually exist unlike a Sole Proprietorship that ends with the death of the individual.

All of the risk associated with a business (commercial risk and legal risk) is assumed by the Corporation and not by the individual Shareholders of the Corporation. For example, a lawsuit brought against a Corporation can only be enforced against the Corporation’s assets and not the assets of the individual Shareholders. Even if the Corporation is 100% owned by a single Shareholder, the Courts are extremely loathe to look beyond the corporation’s veil and allow a creditor to seize the Shareholder’s property in satisfaction of a corporation’s debt.

– Any profits of the business remain the profits of the Corporation and not necessarily the profits of the Shareholders or the Directors.
– The incorporation and continued existence of the Corporation may be more expensive than the creation of a Partnership or a Sole Proprietorship.

What Should I Consider When Deciding Between a Sole Proprietorship, a Partnership, or a Corporation?

Working with your accountant, we can help you plan and create the business entity which is best suited to your needs. The following are some factors which you can consider in making your decision:

The Sole Proprietor is personally liable for every aspect of the business and always assumes all of the financial risk involved with the business.

A Partnership shares the financial risk equally between the Partners however creditors can still pursue an individual Partner’s personal assets as well as any joint assets of the Partnership.

The Corporation assumes all of the liability of the business and protects the Shareholders. The Corporation creates the least financial risk to the individual. Any losses or debts belong to the Corporation and are not passed on to any individual investors.

Some businesses are more suited for one type of business association. This can depend on the number of individuals who wish to participate in the business or the type of business itself.

Examples:
a. An individual selling Avon is better suited as a Sole Proprietor.
b. Two Brothers running a painting business may only need to be a Partnership.
c. A business that requires money for start up may wish to use a Corporation to attract investors.

In a Partnership, as with a Sole Proprietorship, the income and the debts belong to the specific individuals and to no other entity. A Partnership does not file a tax return, the Partners each file their own individual tax return. The Partners and the Sole Proprietors can personally write off any losses against any income.

In a Corporation, the losses do not flow through to the Shareholders. The losses of the Corporation belong to the Corporation. Any income from the Corporation is taxed, as well as any income that the Shareholders receive is again taxed.

Sometimes an individual wishes to create a business that can continue to exist past their retirement or even past their own death. This may be preferred in family situations. Unlike Sole Proprietorships and Partnerships whose existence is limited by the life span of the individuals, a Corporation can exist perpetually.

Furthermore, if the plan is to pass the business onto your children or grandchildren then this may be a simple process of transferring the ownership in the shares of the Corporation.

There are individuals that wish to invest in a business without actually having to be required to participate in the running in the business. In such a situation, a Corporation may be ideal as the investment occurs with the purchasing of shares and a shareholder is not required to play a large role in the day-to-day running of the business.

A Partnership may also have a silent partner that may invest funds without playing a large role in the actual business.

The Sole Proprietor will receive the net income from any business venture.

A Partnership regularly distributes any profits directly to the Partners.

The profits of the Corporation are not always immediately passed on to the Shareholders since share dividends are at the discretion of the Board of Directors of the Corporation. However, in a closely held corporation the shareholders are likely to be on the Board of Directors and can decide when to pass dividends on to the shareholders.

The sole expense of creating and maintaining a Sole Proprietorship can be as simple as maintaining the business license required by legislation or by-laws.

A Partnership can cost just as much as a Corporation to create.

Corporations are obliged to maintain corporate records and meeting minutes which are not required to be kept by a Partnership. Also, a Corporation must file an annual return with corporate registry under the Business Corporations Act.

Purchase of a Business

If the business being purchased is owned by a corporation it can be acquired by either a purchase of the business assets or by purchase of the corporation’s shares from its shareholders. If the business is owned by an individual or a partnership then the business can only be acquired by directly purchasing the assets of that business.

The initial decision is a complicated one that likely requires a lawyer, an accountant and possibly an expert in business valuations or a lender. There are also income tax questions that may need to be answered. For example, often a buyer wishes to purchase the business assets rather than the shares in the corporation in order to take advantage of capital cost allowances. However, the seller may wish to sell the shares in the corporation rather than the assets so that the purchase price can be paid directly to the seller without going through the corporation.

– By purchasing shares the buyer also indirectly acquires the liabilities of the business along with the assets of the business
– By purchasing the shares, the complexity of conveying and valuating every individual asset is avoided
– By purchasing the shares, the buyer loses the opportunity to allocate purchase price to specific assets
– By purchasing the shares, the buyer loses the opportunity to take advantage of any capital cost allowances

Generally, the procedure in purchasing a business could be as follows:

  1. Examination of an audited financial statement of the business or corporation and a complete list of all the assets;
  2. Buyer’s lawyer drafts either a letter of intent, a formal offer, or a preliminary agreement which may include price, method of payment, closing dates, etc;
  3. Lawyer conducts specific searches to determine any liability which the corporation may owe;
  4. Documents relating to the business and/or corporation should be examined. These include incorporation documents, corporation minute book, any current contracts of the business, and inventory/asset lists.
  5. Purchase is completed with the execution of the purchase agreement.

There are many searches that a lawyer may conduct in order to better ascertain the liabilities of a business. Some of these searches include the following:

– Personal Property Registry
– Corporate Registry
– Bank of Canada
– Court House
– Sheriff’s Office
– Land Title’s Office
– Municipal Tax Office
– Worker’s Compensation Board
– Municipal Planning Office

The purchase of a business through the purchase of shares or assets requires the consideration of many areas of law. For example, if a competitor is being acquired then there may need to be Competition Act complications. The purchase or issuance of shares may require looking at the Securities Act. If the business has employees then the Employment Standards Code may also need to be considered.

Also, the drafting of the final purchase and sale agreement requires specific wording and consideration that a lawyer can provide in order to protect the interest of the buyer. Also, the use of a lawyer’s trust account in order to guarantee that purchase or sale funds are not misappropriated.