Velocity Alpha Workshop:Set Up Your Business

Like a BossThe Legal Stuff

Genie Lyon, VeloCity Lawyer and General Advice Dispenser

June 3, 2015

What This Presentation is NOT – or Common Misconceptions About Lawyers and Legal Stuff

• If you came with questions about your business, they will likely not be answered in this presentation.• Nothing is “normal”; legal work is not one size fits all.• Do not expect checklists and templates to protect you.• Just because someone’s selling something similar to you,

doesn’t mean that their legal agreements will fit you.• Lawyers are not omniscient.

It’s Your Business – or How To Work With LawyersStep 1: Know what you want.• This involves doing your research and understanding what you’re asking a

lawyer to do. For example, don’t just ask for a Terms of Use document – understand why you need it.

Step 2: Know the risks you’re willing to take.• This involves thinking through your business model, your logistics to fulfil

your product or service, and all the things that could go wrong.Step 3: Set it all out in detail.• Don’t assume that the lawyer knows the field your business is in, or how

your product/service works. Describe.Step 4: Ask questions.

Structural Versus Substantive Requirements

Legal requirements of a business can be broken down into two basic categories – those relating to the structure of the business (where it’s largely immaterial what product or service you’re offering), and those that are specific to the product or service you intend to sell – or the substance of your business.

Structural Requirements• Who you are: the business’s legal identity; your business name and trademarks • What you need to do: mandatory registrations and compliance with regulatory

requirements• How you operate : agreements for employees and contractors; financial needs• Where you will be: lease/facility agreements relating to your operations

Substantive Requirements• What intellectual property you will create, and how you want to protect it• What you need from your suppliers• The terms you offer your products or services under• How you will provide your products and services to the market eg. distribution

network, export permits and requirements• Permits and regulations specific to your industry, products or services

Legal entities for your business

BENEFITEasy to set up – all you need

to do is register the business name

DRAWBACKBecause there’s no difference

between you and the business, any personal asset you own is fair game for business debts

Sole Proprietorship• Legally, You = Your sole proprietorship

Legal entities for your business

BENEFITEasy to set up – all you need

to do is register the business name

DRAWBACKSame drawbacks as sole

proprietorship, PLUS you’re responsible for your partner’s actions/debts

Partnership• Legally, You and your partner(s) = Your partnership

It’s important to get a partnership agreement in place so everyone’s on the same page.

Legal entities for your business

BENEFITSeparation of business and

personal issuesEasier to get investorsEasier to transfer ownership

DRAWBACKExpensive to set up and

maintainMore legal administrative work

is required on an ongoing basisNot easy to dissolve

Corporation• Legally, a corporation is separate from you – it’s a legal entity in

its own right.

Less common business formats

Joint Venture• Not a legal entity• Agreement-driven• Used when several people want to pursue a common projectCo-operative• Special type of corporation• Most commonly used for non-profit organizations, not for-profit

ventures• For the benefit of members only

Business names and trademarksBusiness name• Your business name can be a trademark, but doesn’t have to be• Business name must be registered if it differs from your full name or

your corporation nameTrademarks• Trademarks are tied to your reputation and are tested based on

whether they can be confused with someone else’s• Trademarks need not be registered, but registration can help

strengthen a trademark

Legal Requirements and Your Business Structure Registrations and Permits• Business name and business number•WSIB, CRA and other applicable agencies

Structural Documents•Minute books – minutes of meetings, resolutions• Shareholders’ agreements, partnership agreements• Employment agreements (to be discussed later)

Employee and Contractor Agreements• Hiring employees versus using contractors• Understand your obligations under the Employment Standards Act,

2000 • Best to have agreements that are protective and accurately reflect the

relationship• Employees and contractors need to be paid for agreements to be

enforceable• Try to avoid paying with equity• Useful to develop employee policies

Investment and Financial Agreements• Some of the driest legal agreements, with the smallest text

size, you will ever see. You should still read them and be aware of what you’re signing up to.•Watch out for onerous penalty clauses and other strings tied

to the money they provide• Be aware of repayment terms and milestones• Try to avoid giving up your IP (may be disguised in the form

of putting up IP as collateral)

Business FacilitiesOffice Space • Get a good agent and read the lease or purchase agreement for

“gotchas”, and make sure you can use the space the way you want• Be clear about what the term is and how to get outOffice Equipment and Services• Watch out for contracts that lock you in and have onerous penalties

to get out• Be aware of what your obligations are, and what the suppliers’ rights

are

Protecting Your Intellectual PropertyIdentify your IP and your protection strategy, watch out for contamination, have tight agreements, and don’t place your trust unwisely.

• Non-Disclosure Agreements / Confidentiality Agreements• Traditional forms of registered protection – patents, copyright,

industrial design, trademark• License Agreements• Enforce your rights – the most bulletproof legal documents in the

world won’t protect you if you let everyone ignore your rights

Agreements Related to the Substance of Your Business

These agreements include:• Agreements with suppliers• Agreements with customers• Agreements with distributors and resellers• Cooperative agreements (eg. sponsorship agreements)

with potentially symbiotic entities• Development and research agreements

Agreements Related to the Substance of Your Business (cont’d)

General Rule: Be clear and be detailed!• Make sure that your obligations and your requirements are clearly

covered – how long it will last, what your liabilities are, and all the financial details

• Make sure there’s a clear way to exit the agreement• Look at worst case scenarios (play the “what if?” game) and make

sure they’re covered• Make sure there’s a clear way to exit the agreement• Avoid “scraping” agreements from other sources

Compliance with Laws and Regulations

• How you sell and marketCanada’s Anti-Spam Legislation, Competition Act

• How you store personal information and data• PIPEDA, MFIPPA, HIPAA

• Laws, regulations and certifications specific to your business/product/service• Export and Import

Be mindful of the jurisdiction you’re operating in!

In closing…The legal protections and agreements that you decide to put in place or to dispense with, after consulting with your lawyer, can make the difference between success and failure.

You’ll avoid a lot of future difficulties if you set out, on paper, exactly what you are doing and the limits of your obligations, so that anyone looking at that paperwork knows precisely where they stand with you.

Thanks!

ResourcesService Ontario

To find out more information about starting a business in Ontario, you can go to the following site. Under “Topics”, click on “Business”. The menu item “Topics” on the Business page contains a wealth of information. http://www.ontario.ca/serviceontario

Canada Business Network

This site provides a general overview about starting a business. There is some overlap with the Service Ontario site, but it is a bit better organized, and it gives the federal perspective, as well as linking to business sites of provinces other than Ontario. http://www.canadabusiness.ca/eng/page/2856/

Law Society of Upper Canada

If you’re looking for a lawyer to advise you on something, but don’t know where to find one, check out this site. The Law Society of Upper Canada regulates lawyers, and their site offers services to the public, including a lawyer referral service, a directory of lawyers, and a list of lawyers who are certified specialists in certain areas of law. http://www.lsuc.on.ca/

Library

Don’t underestimate the amount of information you can get from the website of your local library. If you have a library card, you have access to databases that you would otherwise need to pay for, and the library’s website also often links to other useful sites, including local resources. Below is the URL for the Waterloo Public Library’s resource page for businesses. http://www.wpl.ca/ebranch/research/business-employment/

Laws

Sometimes, it’s useful to look at the text of the actual law affecting you – not just someone’s summary or interpretation of the law. Looking at the law gives you the information about your legal obligations without any filter. Some laws are easier to read than others, of course! Looking at the law also has the benefit of pointing you in the direction of the ministry, tribunal or other entity in charge of the subject matter. http://www.canlii.org/en/index.html

Resources (cont’d)Ministry of Labour

Questions about employment often arise. The Ontario Ministry of Labour has an excellent website respecting employment standards, with many fact sheets, that can provide guidance. http://www.labour.gov.on.ca/english/es/index.php

Canada Revenue Agency

The CRA provides some guidance on its site respecting tax and financial requirements for business, though you sometimes need to dig quite deeply to find what you’re looking for. http://www.cra-arc.gc.ca/bsnsss/menu-eng.html

Canadian Trade Commissioner Service

If you’re at the stage where you are considering exporting abroad, you may wish to explore the website of the Canadian Trade Commissioner Service, which provides some guidance as to world markets. http://www.tradecommissioner.gc.ca/eng/home.jsp

Intellectual Property Offices

If you want to get a bit more information on what the different categories of intellectual property are, and how you can obtain protection for them, you may want to look through the websites of the Canadian Intellectual Property Office and the U.S. Patent and Trademark Office. They have guides as well as searchable databases.

Canadian Intellectual Property Office: http://www.ic.gc.ca/eic/site/cipointernet-internetopic.nsf/eng/Home

U.S. Patent and Trademark Office: http://www.uspto.gov