Starting a business in Canada involves a number of different legal procedures. The most common ones are: setting up a company, purchasing a business; preparing partnership or shareholders agreement, hiring employees; and leasing property. Being business lawyers as well as immigration lawyers, Lowe & Company can assist you with all of the above, and more.
Incorporating a Company
In Canada, most people establish a limited company in order to conduct their business. The 2 main advantages are (1) limited liability, so that creditors of the business cannot go after your personal assets; and (2) minimizing your income taxes.
There are Provincial Incorporations and Federal Incorporations; for most businesses in British Columbia, a Provincial incorporation would be the best choice, as it is less costly to set up and administer.
We can advise you of the best corporate structure for your purposes and can usually set companies up within a week.
Purchase of a Business
There are 2 general ways to purchase a business: either by buying the shares of the company that operates the business, or by buying the assets of the business from that company.
If you buy the shares of a company to take control, you inherit all of the assets and the liabilities. There are often tax advantages to the Seller, so the price may be lower than if you purchase the assets. Also, there may be fewer taxes and transfer fees for some of the assets, which could be significant. However, you also inherit all of the liabilities, disclosed and undisclosed.
When you buy a business’ assets, the transaction is less risky in that you do not generally have to worry about undisclosed liabilities. Also, although you may need to pay transfer costs and taxes (and the Seller may also need to pay taxes on the sale) your new company acquires the assets at a higher “tax cost”, that could result in tax savings in the future.
The choice between a Share purchase and an Asset purchase must be researched carefully. The price difference between the two methods may be as much as 25% or more, but you may be taking on additional risks that would not be advisable. We can work with your accountant to analyze the transaction, then structure your business purchase to minimize your risk as well as your cost.
Where you are going into business with other partners or shareholders, it is often very useful to have a Partnership or Shareholder Agreement to outline the roles, responsibilities and expectations of each party. Some of the things that should be covered include:
- The roles and responsibilities that each person would have in the business;
- What decisions must be agreed upon by all the shareholders, or a specific majority;
- What happens if the business needs more money, and only some parties are prepared to invest;
- Limits on signing authority (eg contracts worth over $25,000 must be signed by 2 parties);
- What happens if one of you is disabled, or dies;
- How to sell off your shares in the company, especially if the shareholders are not on good terms;
- How to share profits;
- And many other factors.
With a properly prepared Shareholder Agreement, we can help you plan your company’s affairs.
In BC, the rights of employers and employees are governed by law; the most important one is the Employment Standards Act, which sets out minimum wages, hours of work, overtime regulations, holidays, leaves of absences, and so on. You may find out more at: www.labour.gov.bc.ca/esb/
The Employment Standards Act (“ESA”) will also set out minimum notice requirements should you decide to terminate an employee; this is usually at least 2 weeks. In addition, the law in British Columbia often requires additional notice for more senior or specialized employees which could be much more than the ESA requirements.
We can assist you in preparing a written employment agreement with your employees to set out the rights and obligations of each party.
Leasing a property
Renting or leasing an office or location for your business is one of the most important decisions that you will make. Before you sign an Offer to Lease, here are some things to consider:
- The Offer to Lease is a contract. Once you sign it, you may be legally obligated to abide by its terms, which the landlord or agent may not be willing to change.
- Are you signing the Offer on behalf of a company or personally? You may be personally liable for the lease payments for the duration of the lease.
- What incentives are there being offered for a similar space? Are other landlords offering free rent? An allowance to pay for the renovations? Cash rebates? These should be discussed with your real estate agent; it may be advisable to retain one separate from the landlord’s agent.
- What is the term of the lease, and is there an option to renew?
- Do the zoning and bylaws allow your kind of business to be operated at this location?
It is best to research all of these BEFORE you sign the Offer! Our lawyers can help you handle the legal aspects of your lease negotiation, preparation, and other matters to prepare your business for the long run.