How To Prepare For Changes In A Shareholder’s Life Circumstances: Buy-Out Clauses A shareholders’ agreement often includes the framework within which the business relationship will be governed. It can also provide mechanisms to address the dissolution of that relationship. This entry complements our previous blog on provisions by which shareholders or the corporation, can force a share transfer. Disability, Death, or Insolvency of a Shareholder An individual shareholder’s demise, insolvency or general inability to carry out his or her duties can be challenging for the remaining business partners. A shareholders’ agreement can provide that the remaining shareholders, or the corporation itself, are obliged to purchase the shares previously held by the affected shareholder or by his or her estate, and can set out the payment terms for the transaction. It can also include life insurance provisions, pursuant to which the insurance proceeds can be applied to payment of the purchase price. Valuation Mechanism Shareholders’ agreements will typically provide a mechanism by which to determine the fair market value of the shares at a given point in time. Provisions of this type can help avoid disputes as to value and as such are particularly helpful should the business relationship become less than amicable. Transfer Restrictions The shareholders’ agreement can restrict individuals or legal persons to whom or to which a shareholder may transfer his, her, or its shares. Provisions of this nature help ensure that the remaining shareholders have a means by which to control those with whom or with which they are business partners. There are a variety of provisions that can be used in shareholder agreements to govern shareholder buyouts or provide for the sale of a company in the event of unforeseen circumstances that end the relationship between shareholders. To further discuss these provisions or other aspects of shareholder agreements, please contact Elisabeth Colson, senior corporate lawyer at Devry Smith Frank LLP. You can reach her directly at (416) 446-5048 or by email at lisabeth.colson@devrylaw.ca. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.” By Fauzan SiddiquiBlog, Corporate LawApril 26, 2021July 5, 2023
COVID-19 and Collecting Personal Information The COVID-19 pandemic changed the way people do business. For many businesses, government regulations currently require operators to record the name and contact information of every person who enters the establishment and to maintain these records for at least one month. The purpose of this is to assist with contact tracing should a COVID-19 outbreak occur at an establishment. For other businesses, collecting personal information is a by-product of increasingly doing business online. Business owners must be aware of the implications when collecting this sort of private information and the laws that govern its collection. In particular, the federal Personal Information Protection and Electronic Documents Act SC 2000, c5 (PIPEDA), sets the ground rules for handling personal information in the course of commercial activities. This act applies whether businesses are collecting personal information in person or online. The following are best practices that businesses should adopt in order to be compliant with PIPEDA and other applicable privacy laws: Understand and identify the purpose for collecting private information. Do not collect more information than is necessary.Adopt privacy policies and procedures that set out the reason for collecting information, the length of time the information will be stored and its destruction procedure. Do not collect any information contrary to these procedures.Appoint someone to be responsible for privacy issues.Make information about your privacy policies and procedures available to customers.Inform customers of the purpose for collecting this information and obtain consent.Keep the information only for as long as is necessary and then destroy it using proper procedures.Use proper safeguards when storing the information. Do not leave the information in plain sight and keep it safe.Develop a simple and easily accessible complaint procedure. If a customer contacts you about a privacy concern, the customer should be informed about avenues of recourse. If you have further questions regarding collecting personal information during the era of COVID-19 or regarding your obligations under Canada’s privacy laws in general, or if you require assistance in developing effective privacy policies and procedures, please contact Esther Abecassis, lawyer at Devry Smith Frank LLP at esther.abecassis@devrylaw.ca or 416-446-3310. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.” By Fauzan SiddiquiBlog, Corporate Law, COVID-19March 15, 2021March 15, 2021
Ontario Introduces the Personal Real Estate Corporation (PREC) On October 1, 2020, the Government of Ontario filed Ontario Regulation 536/20, Personal Real Estate Corporations (“Regulation 536/20”), under the Real Estate and Business Brokers Act, 2002, SO 2002, c 30, Schedule C (“REBBA 2002”). Regulation 536/20 allows realtors in Ontario to incorporate Personal Real Estate Corporations (“PRECs”) and establishes the regulatory framework with respect thereto. Realtors now join other professionals, such as medical doctors, lawyers and accountants, who are permitted to earn income through a professional corporation. This post provides an overview of Regulation 536/20 and addresses some of the potential benefits of a PREC to a realtor. Regulation of PRECs Pursuant to Regulation 536/20, a PREC must be incorporated under the Ontario Business Corporations Act, RSO 1990, c B.16. The PREC’s sole director, sole officer and the controlling shareholder must be registered under REBBA 2002, or exempt from registration, and must be employed by a real estate brokerage to trade in real estate. The PREC itself cannot carry on the business of trading in real estate other than by providing the services of its controlling shareholder to the brokerage. The PREC is only permitted to receive remuneration pertaining to trading in real estate from the controlling shareholder’s brokerage. Likewise, the controlling shareholder is only permitted to receive remuneration pertaining to trading in real estate from the PREC or from the brokerage by which the controlling shareholder is employed. Benefits of PRECs If used correctly, a PREC can assist a realtor with tax planning. Instead of all annual income being taxed at the realtor’s personal marginal income tax rate, income retained in a PREC will initially only be taxed at a corporate tax rate. Presently, the combined federal and Ontario personal income tax rate is over 53% on income over $220,000 whereas for Canadian controlled private corporations entitled to take advantage of the small business tax deduction, the current combined federal and Ontario tax rate is only 12.2% on income up to $500,000. Thus there is the potential for considerable deferment of taxes. Retaining earnings in a PREC may allow for personal income to be “averaged” over several years. The real estate industry can be volatile and realtors are usually only paid on commission. As such, a realtor may have a sizeable income one year and less income in the following years. If one year results in particularly high earnings, those earnings can be retained in the PREC and paid out to the realtor over the following years, rather than being paid to the realtor by the brokerage in the year in which they were earned. This may result in the earnings being taxed at lower marginal income tax rates over several years. The realtor also has the option of being paid by the PREC through dividends rather than through wages, which may provide additional tax advantages. The PREC also allows real estate agents the ability to income-split with the realtor’s spouse, child or parent, subject to the more comprehensive rules regarding tax on split income (which are relaxed for persons over age 65). Therefore, it may be possible to pay amounts from the PREC to those family members, who will presumably be taxed at a lower marginal tax rate than the realtor. Is a PREC Right for You? In order to take advantage of the benefits that a PREC can offer, proper planning is essential. A realtor must consider the extra administrative costs associated with incorporating and maintaining a corporation and weigh these costs against the potential benefits of a PREC. To further discuss whether or not a PREC is appropriate for your situation or to learn more about incorporating a PREC, please contact Elisabeth Colson, a partner and the head of Devry Smith Frank, LLP’s Corporate Commercial Group, at 416-446-5048 or at elisabeth.colson@devrylaw.ca. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.” By Fauzan SiddiquiBlog, Corporate Law, Real EstateOctober 28, 2020April 10, 2024
How Canada’s Privacy Legislation Affects the Use of Third Party Information and Payment Processors Businesses often use third party entities to process customer information or transactions and to then relay portions of that information back to the business. Businesses using third parties in this manner should be aware of the provisions of Canada’s privacy legislation in this regard. Overview of Canada’s Privacy Legislation Canada’s two predominant privacy statutes are the Privacy Act, RSC 1985 c P-21 and the Personal Information Protection and Electronic Documents Act, SC 2000, c5 [“PIPEDA”]. The former applies to actions of the federal government, while PIPEDA applies to every entity that collects, uses or discloses personal information in the course of commercial activities. Alberta, British Columbia and Quebec have provincial privacy legislation which is, for the most part, substantially similar to PIPEDA. Compliance with PIPEDA Any entity collecting personal information for the purpose of a commercial activity must first obtain the consent of the individuals whose information is being collected. It is important to note that personal information includes the names and contact details of individuals, as well as their credit card and other financial information. PIPEDA provides that “the consent of an individual is only valid if it is reasonable to expect that an individual to whom the organization’s activities are directed would understand the nature, purpose and consequences of the collection, use or disclosure of the personal information to which they are consenting.” Therefore, whenever personal information is collected in a commercial context, the individuals whose consent is sought must be informed of the manner in which their personal information will be used and disclosed. The transfer of information to third parties for processing is considered to be a disclosure of information. It therefore follows that when seeking someone’s consent for collection of his or her personal information, the entity collecting the information should outline that the information will be shared with third parties for processing. Furthermore, if the third party is in another country, specific risks such as the possibility of foreign officials obtaining the information, should be disclosed to the individuals whose consent is being sought. In summary, a business seeking to use third party processors of customer information or payments should so advise any individuals whose personal information will be collected and should outline for those individuals the potential risks of the collection and disclosure of the personal information by and to, the third party. The third party processor should ensure that the necessary consent has been obtained and that its contract with the business provides for indemnification by the business should issues arise as a result of the collection and processing of the personal information. For questions regarding compliance with Canada’s privacy legislation in a commercial context, please contact Elisabeth Colson of Devry Smith Frank LLP at 416-446-5048 or elisabeth.colson@devrylaw.ca. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.” By Fauzan SiddiquiBlog, Corporate LawAugust 15, 2019April 30, 2021
Bill C-86: What it Means for Your CBCA Corporation Bill C-86 institutes a long list of amendments to several Federal statutes, including the Canada Business Corporations Act (“CBCA”), and officially comes into force on June 13th, 2019. What does this mean for your corporation? Prior to these amendments, the CBCA required only federally-registered corporations to maintain a general securities register under s. 50(1). As of June 13th, however, all privately controlled corporations governed by the CBCA will be required to maintain a detailed securities register of individuals with “significant control” over the corporation. An individual with “significant control” is someone who is the registered/beneficial owner of, or someone who has direct or indirect control over, a “significant number of shares” of the corporation, being either ownership of 25% or more of the corporation’s outstanding voting shares, or ownership of any number of shares equal to 25% or more of the corporation’s outstanding shares measured by fair market value. “Significant control” also includes an individual who has any direct or indirect influence that, if exercised, would result in control in fact of the corporation, and anyone to whom “prescribed circumstances” (to be defined by future regulations) apply. Two or more individuals who jointly own a “significant number of shares” can be considered jointly an individual with “significant control over the corporation.” The register of individuals with “significant control” must provide the following information with respect to each such individual: (a) the individual’s names, date of birth and the last known address; (b) the individual’s jurisdiction of residence for tax purposes; (c) the day on which the individual became or ceased to be an individual with significant control; (d) a description of how each individual has significant control over the corporation; and (e) any other prescribed information [to be explained in future regulations] The Bill also includes several other requirements regarding the proper maintenance of the “significant control” register. Improper maintenance of this register is an offence punishable on summary conviction and may result in a fine of up to $5000. Any director or officer of a corporation who knowingly records, provides, authorizes or acquiesces in the provision of false or misleading information in this register is liable on summary conviction to a fine of up to $200,000 or imprisonment of up to 6 months, or both. The corporation’s shareholders or creditors, as well as the Canadian government, may request access to the information contained in the significant control register which, if provided, may be used only for matters relating directly to the affairs of the corporation. Finally, it is also likely Ontario legislation, at some point in the future, will mirror these new Federal amendments, as the Finance Minister of each province has agreed to “pursue legislative amendments” that strengthen the transparency of corporate ownership. If you would like more information on these amendments, or would like legal advice to ensure your corporation follows these new requirements, please contact elisabeth.colson@devrylaw.ca or at (416) 446-5048. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.” By Fauzan SiddiquiBlog, Corporate LawMay 9, 2019June 13, 2020
Erase Every ‘Shall’? In many English speaking jurisdictions, the term “shall” is deemed to be somewhat ambiguous for the simple reason that it appears to make reference to discretion rather than obligation. In an attempt to look at its meaning precisely, consider Canadian corporate legislation as set out in the Canada Business Corporations Act which states, “A corporation “shall” set out its name in legible characters in all contracts, invoices, negotiable instruments”. In law school, aspiring lawyers are overwhelmed with “shalls” in statutes and contracts and as a result, “shall” still remains the word that makes legal instruments obviously clear. However, in actual fact, one may argue that it indicates quite the contrary. There has been a notable amendment to the Interpretation Acts of at least three Canadian provinces (British Colombia, Alberta and Manitoba) which states that “must”, is to be interpreted as imperative, eliminating any contradiction with the use of “shalls”. This solution is not commonly acknowledged by other government agencies even though there is insufficient evidence, mainly in the form of case law, to cast doubt on the effectiveness of replacing “shall” with “must” to establish obligation. This approach may offer more consistency and less vagueness. Legal writing should be precise and, in a ideal world, offer little to no room for dispute. Yet, in corporate contract circumstances, it is common practice to ensure that the obligation of each party is reflected in any agreement, in what should be deemed incontestable. Therefore, the intended consequence must be made ultimately clear to avoid scrutiny. With that being observed, it may be fair to determine that the preferences of legal professionals lean towards the unambiguous “must” – imposing clarity and a legal obligation. A corporate lawyer is an essential part of your contract review and negotiation process to ensure that any agreement entered into accurately reflects the desired intent. Contact Elisabeth Colson of Devry Smith Frank LLP for experienced corporate assistance, at elisabeth.colson@devrylaw.ca or at (416) 446-5048. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.” By Fauzan SiddiquiBlog, Corporate LawApril 30, 2019May 22, 2021
The Importance of Shareholder Agreements Any business that has two or more shareholders or equity investors should seriously consider having a shareholder agreement to protect not only the shareholders but also the business itself. Too often, the shareholders of a start-up business are reluctant to spend the time or money to prepare an agreement that addresses the major areas of business operations or potential areas of dispute that may arise in a jointly owned and managed business. While it is desirable to have an agreement that deals with most of the ongoing management issues in a business and the areas of potential disagreements, realistically the cost of preparing such agreement with successive meetings and drafts is not within the budget of a start-up business. However something is better than nothing, and a limited practical approach is to have what I like to refer to as a “Meanwhile Agreement.” This would take the form of two or three page listing of the most important areas of agreement between the parties without getting into the detailed “boilerplate” that usually finds its way into a 30-40 page agreement. There is always time and money available when a business evolves beyond the start-up phase and becomes profitable. There is no such thing as a standard off-the-shelf agreement that is a one size fits all document. The most effective way to ensure your shareholder agreement meets the needs of the parties is to require the parties to be involved in the process of establishing the terms of the shareholders’ agreement While a perfect Agreement is desirable, it is more realistic for the parties to feel comfortable that they can “live” with the terms of the Agreement, no matter how brief or detailed it may be. So what are we talking about? A Shareholder Agreement is essentially a private contract entered into voluntarily by all shareholders of a business, that contains the following kinds of provisions (the listing is not exhaustive), even in the simplest of businesses: the names of the shareholders the number and class of shares held by each shareholder the amount of investment by each shareholder what happens if the business requires additional capital allocation of responsibilities as between the different shareholders in the operation of the business what happens if a dispute arises between the shareholders; do the parties wish to create a mechanism for one shareholder to buy out the other How decisions relating to the business will be made; unanimity, or in the case of 3 or more shareholders, does a majority of votes rule What happens if a shareholder dies; will the shareholders, or the business take out insurance on each shareholder’s life to provide funds for a buy-out on death; what happens if a shareholder becomes incapacitated and is unable to work full time What happens if a shareholder wants to leave the business Are shareholders required to work full time in the business Is any shareholder permitted to start another business, or do engage in a competitive activity Without some agreement that deals with what happens if a dispute arises, any shareholder can apply to the court for an order winding up the business, not a desirable result. However, if the parties have addressed this issue in an agreement, even if it is a short one, the courts will give effect to the parties’ intentions. For more information or to arrange an appointment with Frank Shostack for any corporate services, please click on his profile, email him, or give him a call today. For any other needs, please call our office directly at 416-449-1400. “This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.” By Fauzan SiddiquiBlog, Corporate LawDecember 1, 2017June 17, 2020
How Some Gyms are Trying to Avoid Rights under Gym Contracts Read your contracts carefully! Beach season is coming, which means many gyms are launching “free” trials in order to entice customers to enroll in lucrative contracts at their gym. However, many consumers looking to get in shape are unaware of the recent trend by gyms to classify their contracts as “student tuition agreements” in order to avoid contractual obligations to their members. Why does the classification matter? Organizations such as gyms, sports clubs, dance classes, martial arts clubs and hot yoga studios, previously had their contracts classified as “personal development services.” Since many consumers are vulnerable to unscrupulous practices in the area, the government has introduced the Consumer Protection Act to regulate these services. Some of the consumer’s rights under “personal development services” include the following: the contract must be in writing and delivered to the consumer (if a copy of the agreement is not received, a consumer can cancel the contract at any time within one year); consumers have a 10 day “cooling off period” where they can cancel the contract for no reason with no penalty (the “cooling off period” starts upon receipt of the contract); the agreement is limited to one year (the contract is deemed not to be renewed unless explicitly authorized by the consumer or the contract has a one month’s notice opt-out provision); initiation fees cannot be more than double the price of an annual membership; and if the consumer is paying in monthly installments, the total amount cannot be more than 25% of the amount of the contract if it was paid upfront. If these contracts are classified as “student tuition agreements” all of these rights are avoided. Student tuition agreements can have automatic renewals for more than one year and there are fewer requirements to provide consumers with information. Many gyms are requiring that consumers pay for their memberships using a credit card, which allows gyms to charge payments months in advance, automatically renew the membership and directly bill late fees. For personal development services, there is an implied right that the gyms must provide a reasonable use of their premises and equipment to their members, something completely disregarded in “student tuition” contracts. Usually, gyms guarantee that there is working fitness equipment, premises which are clean and sufficient space for members—otherwise, the contract can be cancelled with notice (see Findlaw Canada’s Article). It is now common for prospective members to show up for the “free” trial class, and then be pressured into signing a “student tuition agreement” by a gym that will never provide a copy of the contract. Furthermore, the default is that the start of the contract is deemed to be the date of the first free trial class (consumers must correct this date before signing the contract). Consumers should also ensure to check the billing date of the contract—if a member signs up a few days before the end of the month there is a chance he or she could be billed for the whole month even though he or she didn’t use the facilities/classes during that time. Visit the Government of Ontario website for more information. It is important to know your rights before signing any sort of contract. If you are in need of a lawyer, please visit our website and contact one of our commercial law lawyers today. If you are in need of any other services or have any questions, you may also contact our Toronto office directly at 416-449-1400. “This article is intended to inform and entertain. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.” By Fauzan SiddiquiBlog, Corporate LawMay 10, 2017June 22, 2020
