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If the corporation is to have only one shareholder, the person who incorporates it – the incorporator – sometimes skips organization – the incorporator generally controls the corporation anyway (because they typically establish themselves as the first director, and that person has the power to issue shares, which in general grounds the power to do everything else). Some people defer organization because they see it as something they can do later, when they need it done for some specific purpose. This delay is often of little or no significance for many – in the short term, whether or not a corporation is organized will generally be of no importance to customers, many suppliers and other third parties, so it is sometimes ignored, at least at the outset.

But certainly for the corporation that has more than one shareholder, organization can be critical – it establishes important details of key legal relationships between the shareholders, basics without which the potential for costly misunderstandings can increase. And banks will generally require some organizational steps be taken when you open an account. As a result, in many cases it makes sense to get it done when you create the corporation.

Organization is generally very easy – in simple cases there are a few corporate resolutions to prepare, shares to be issued, a by-law or two to adopt, and director(s) and officer(s) to elect and appoint. There are common forms for much of this, and most lawyers have clerical staff handle it, at a small cost to the client.

The most complex aspect of organization arises when the corporation needs a shareholders agreement – the form of agreement used when the shareholders want to go beyond the basics of the applicable corporate law and the by-laws in their establishment of the rules that are to govern how the corporation manages its affairs, and how its shareholders are to relate to each other and the corporation. In the near future, I’ll post on shareholders agreements in Ontario, and what purposes they serve.

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(For more information about the legal services I provide, visit my site, here.)

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Fresh “consideration” required to support variation of contract

On Krzysztof Rejdak’s first day of work, he found himself in a pickle. He was given an employment contract with a three-month probationary term and asked to sign his name. For Rejdak, who had already resigned from his previous long-term job, his options were grim: he could either sign his name and agree to be a probationary employee or he could refuse and potentially be unemployed. Fortunately for Rejdak, he later learned in court that not all signed agreements will ultimately be enforced.

For seven years, Rejdak honed his skills as a sports editor at the Ontario-based sports television network, The Score. When an opportunity came about at The Fight Network Inc., a start-up digital television channel focusing on fighting, Rejdak’s response was swift. He interviewed for an editor’s position.

Impressed with his skills, The Fight Network then telephoned Rejdak and offered him the job. After they had discussed his title, salary and start date, Rejdak was satisfied with the offer and the next morning he resigned from The Score.

Later in the day, Rejdak showed up at The Fight Network set to work. But his bosses were surprised to see him there so quickly, since he hadn’t yet signed the standard employment contract given to all new employees. Rejdak was then given a contract containing a three-month probationary period.

(read the rest here)

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What is incorporation and why do I need to incorporate my business?

Incorporation is the process that legally creates a corporation – a form of organization that is probably the most common form for technology businesses.  There are many reasons for this, but the three most important are probably the tax advantages one gets from incorporation; the corporation’s independent, perpetual existence; and the corporation’s limited liability.  The latter two mean that a corporation is a separate legal person, distinct from its owners, and that in general the owners do not have anything at risk other than their investment in the corporation.  For obvious reasons, these characteristics facilitate operating, financing and selling businesses.

Not every business needs to incorporate – sole proprietorship and partnership, for example, are popular vehicles in many contexts.  But the typical life-cycle of a technology business involves activities and relationships with third parties that make incorporation the best choice in most cases.

Where do I incorporate?

Incorporation is done in Canada under one of our many provincial and federal incorporation statutes. These statutes used to be quite different in important respects, but in recent years they’ve mostly been conformed and they’re now very similar (though there are still some differences that can matter for specific needs).  In Ontario, the Business Corporations Act is probably the most common statute used, but many businesses based in Ontario are incorporated under the federal Act, the Canada Business Corporations Act (”CBCA”).  Generally, because of cost and duplication of effort considerations, most businesses in Canada incorporate under their home province’s statute or under the CBCA.  Here is a recent paper from Wilson Vukelich, co-authored by my friend Jordan Dolgin, explaining some of these considerations.

How do I incorporate?

Incorporation is a pretty simple process.  There is a government fee to pay and forms to complete, but that’s about it.  Here’s a slightly dated but still useful outline.  And here’s Industry Canada’s guide to incorporating under the CBCA, and a couple of guides for Ontario.  There are a few services now that will do your incorporation online.  Or you can consult a lawyer, who can do it for you.

What about the company’s name?

I usually advise clients to defer picking a name until the dust has settled on choosing the brand. Most of the clients I work with will change their vision of the brand several times before they settle on their final choice. As a result, I usually suggest quickly locking down relevant domains on any possible choice, but staying with the default numbered name (eg., 1234567 Ontario Inc.) until the choice is settled and the brand is ready to be used in public.  Once you’re ready to pick a name there is a search process that must be undertaken to ensure that the name can be used as the corporate name.

Picking the name is obviously a longer discussion, but before it’s settled it’s a good idea to do an exhaustive search, including in trade-mark registries, for similar names.  And if the business is carrying on business or identifying itself to the public under a name other than its corporate name (eg. a brand name different than the corporate name), that name should be registered under the Business Names Act.  Finally, trade-mark registration, while costly to the typical startup, offers some advantages, and should be considered at some point.

(For more information about the legal services I provide, visit my site, here.)

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We’re looking for contribution from smart, opinionated people who understand the venture capital industry in Canada, and can offer insight into where it is now and what can be done to fix it.  If you’d like to participate, or know someone who should, or have ideas about what issues we should address, please let me know in the comments here or by replying to me on Twitter at @rhh.  I’ll also be looking for tweets tagged with #themarkvc.

The Mark has emerged as a superb destination for smart, thoughtful news, commentary and debate in Canada.  We’re hoping to create a lively and provocative discussion about this important topic.  Will you join us?

Please watch this blog or my twitter feed for more news as we develop this project! And please feel free to help us spread the news.

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If you have any constructive observations, I’m all ears – please post a comment or email me at rob at robhyndman.com.

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