Getting Business Done

by Nathalie Tinti, Associate 

Many first time businesses owners give little thought when entering into an Offer to Lease.  The thought usually goes something like this: I need to rent a space for my business.  I also need to keep my legal fees down as I am just starting up.  I will just execute the Offer to Lease and then retain a lawyer to negotiate the Lease for me.  STOP RIGHT NOW!

I cannot stress enough, in my opinion, the Offer to Lease is more important than the Lease Agreement itself.  This is usually the only stage where the Landlord is willing to make concessions in order to solidify the deal.  This is the stage where the Tenant should be asking for ALL of the items on its wish list.  What should these wish list items be?  I could go on for pages, but some very important ones are: a rent free period; right of first refusal; right to extend; leasehold improvement allowance; waiver of subrogation; non-disturbance agreement; Landlord work to be done; Tenant work to be done; right to go dark etc, etc, etc. The reality is, if the Tenant doesn’t ask, the Tenant ain’t goin’ get!

One provision often included in a standard offer to lease is a section stating that the Tenant agrees to sign the Landlord’s standard form lease agreement without making any changes to it at all.  I am always amazed at how many Tenants agree to this without much thought.  Once signed, this takes away any right you, as the Tenant,  have to negotiate any provisions of the Lease Agreement!  At the very least, it is essential for the Tenant to modify this provision to include such language as “the Tenant has the right to modify the Lease Agreement as the Tenant and/or it’s solicitor deems appropriate”.

Why is this so important for the Tenant to have the right to seek changes to the Lease? A couple of reasons.  First, the Tenant has its largest negotiating power before the Offer to Lease and the Lease Agreement are executed.  The Landlord wants the Tenant in the building as much as the Tenant wants to be there.  Second, commercial lease agreements are weighted favourably towards the Landlord.  There is a reason why it is referred to as “the Landlord’s Standard Form Lease”.  Last, and certainly not least, once the Tenant has agreed to execute the Landlord’s standard form lease and it is attached to the offer which is fully executed, the Tenant’s chance to modify the Lease are practically zero.

Lesson: call your solicitor first…while you are negotiating the Offer to Lease.  It will save you thousands during the life of your lease agreement.

by Tracey Rynard, Associate 

When this legislation received Royal Assent on October 25, 2010, the in force date was to follow  shortly thereafter. Unfortunately, twice we have seen the in force date pushed back. 

Once again, the Ministry of Consumer Services, along with the Ministry of Government Services, who are responsible for the regulations surrounding the legislation, have determined that they require further time in order to ensure a smooth implementation. 

The new expected in force date is July 1^st, 2013.

The roll out of the tools to assist the transition is still expected to be forthcoming shortly and will include:

• Plain language guide to explain the legislation
• Transition checklist
• Draft default by-laws 

You can read more about the legislation at: Not for Profit

By David Smith, Partner, Certified Specialist in Corporate and Commercial Law

The Partnerships Act of Ontario permits certain professionals to practice as limited liability partnerships, known by its initials as an ‘LLP’. This is common for accounting and legal firms. 

There are currently 16 partners of Barriston LLP. The partnership must register its name under the Business Names Act and comply with insurance requirements mandated by the Law Society of Upper Canada. As the name suggests, the partnership carries on the practice of law with a degree of limited liability. As partners we are not personally liable for the negligent acts of another partner. We are liable only for our own actions and for those whom we supervise and/or control.  Each partner is individually insured for professional malpractice. 

Notwithstanding the limiting of liability as between the partners, the firm itself continues to be liable for the negligence of all of its partners, associates and employees and, accordingly, there is no reduction or limitation on the liability of the firm as a partnership. All of the firm’s assets remain at risk. Due to the size of our firm and the transactions for which we provide legal services, Barriston LLP carries substantial excess liability insurance coverage.

by Joanne McPhail, Partner, Specialist in Corporate Commercial Law

There is a funny story about a family patriarch who was advised by one of his VP’s that his son, who worked in the operations unit of his vast company, was not pulling his weight.  The father invited the son over for dinner and brought out two hats.  He put the first hat on and said, “Patrick, I am sorry to inform you that you are fired from the company.”  He then put on the second hat and said, “Son, I have just heard of your termination.  I am so sorry.  Is there anything I can do to help you?”

I have had a few years of experience under my belt, dealing with all sorts of businesses, and I would say that one of the most challenging is often the family run business. You know, the company that grampa started, and now has been passed down to dad, who has his two kids also working in the business? The difficulty with this sort of business, is that it has this extra layer or nuance, easily recognizable at the dinner table during the holidays.

Sometimes, mixing family and business can work, and sometimes it creates so many undercurrents in everyone’s lives and creates so much stress, that it never really becomes what it could be. If you are involved in a family run business, I would highly recommend a book by Tom Deans called "Every Family's Business". It is an interesting and eye-opening read.  Its main topic is succession, which is a pretty important topic given the estimated wealth to be transferred from one generation to the next over the next decade. 

A recent survey of Canadian family businesses by KPMG found that although about half the respondents expect a generational transition in the next five years, few have plans or governance structures in place to smooth the handoff.  So the issues are challenging and complex and involve legal and accounting matters, as well as issues of valuation and communication.  With the family business, maybe even a psychologist!  The key is to open up the lines of communication and start talking about it.  Find the best advisors to assist with your plans.  Ensuring the continued success of the business, as well as the continued bonds of the family, are both very important objectives, and absolutely attainable, with the right mindset.  Wearing two hats may make some sense after all!

By David Lucenti, Associate

I always thought that when your 'time was up' there was no coming back from the dead.  While that, unfortunately, remains the case for us mere mortals, it is not always the case for the companies we incorporate.  In fact, corporations are sometimes capable of being revived after their existence has ended – like Julia Roberts being revived by Kiefer Sutherland in the movie Flatliners. 

In any event, pursuant to s. 241(5) of the Business Corporations Act (Ontario),  the Director can revive a corporation if an interested person applies for the revival within 20 years of the corporation’s dissolution.  An interested person would typically include a director, officer, shareholder, creditor or estate trustee of a shareholder of the Corporation. 

There are various reasons why corporations are voluntarily or involuntarily dissolved in the first place. These reasons might include a failure to file Ontario corporate tax returns, financial statements under the Securities Act or information under the Corporations Information Act.  In Ontario, an application is made by filing Articles of Revival in Form 15 together with the prescribed filing fee which is currently $330.00. The Articles of Revival must be accompanied by: 

• a consent from the Corporations Tax Branch of the Ministry of Revenue;
• a statement by the Public Guardian and Trustee that it has no objection to the revival;
• a name search report and any consent required for the use of the name; and
• if the corporation was dissolved due to its failure to file financial statements under the Securities Act, you must obtain the consent of the Ontario Securities Commission.

Subject to any terms and conditions imposed by the Director, a corporation that is revived shall be deemed for all purposes to have never been dissolved. 

So, if your company has met its unfortunate demise, don’t despair… there is hope for survival (or in this case, revival).

By John Cockburn, Partner

You have an acquaintance, who lives in the USA or lives off shore and she has started doing business in Ontario, having incorporated an Ontario corporation.  She has been told by her lawyer that she needs a Canadian resident director and that by entering into a “Unanimous Shareholders Agreement”, thereby downloading all responsibility for the management of the company to its shareholders, the Canadian resident “Accommodating Director” will be protected from all liabilities as a director.

WRONG!

The Unanimous Shareholder Agreement (Section 108 of the Ontario Business Corporations Act  - the OBCA) will only protect a director from certain Ontario statutory liability and affords such a director **no protection** from liability under the Income Tax Act for payroll deductions not remitted, nor for HST, and no protection against a claim by employees for vacation pay.

CRA (the Canada Revenue Agency) will go after *you* first and leave it to you to seek indemnity from your foreign acquaintance – Good Luck with that!

By Graydon Ebert, Associate

The summer and an ice cold beer go hand in hand. Imagine the disappointment when the guests at your barbecue discover that the cooler is empty. You may be left embarrassed…and with a couple fewer friends. Now imagine the situation if you just bought a new bar or restaurant, and instead of friends leaving without a drink, it is paying customers. You won’t only be embarrassed…your bank account will take a hit.

Lately, I have been involved in a number of transactions involving the sale of a bar or restaurant and one of the more important aspects of such a deal is the transfer of the liquor license to the new owner. Without a smooth transition of the liquor license from Seller to Buyer, the Buyer will face a dry period which will hurt the viability of the business that it just spent significant money on.

The Alcohol and Gaming Commission of Ontario (“AGCO”) regulates liquor licensing in Ontario. To transfer a liquor license in Ontario, a Transfer application must be filed with the AGCO along with an application fee of $1,000. Included with the Transfer application, you must complete:

• A Corporate Structure Form(if a holding company holds 10% or more the shares of the corporation that is applying for the transfer);
• A Personal History Report for all owners/partners/on-site managers/officer and directors of the corporation depending on how the applicant is structured;
• Resumes for anyone supervising the establishment. These supervisors must have at least three months’ experience in the sale and service of food and alcohol in Canada;
• An Establishment Description Form; and
• Once the change in ownership has been completed, the AGCO needs a copy of any shareholders’ resolution authorizing the transfer of shares. If there was no transfer of shares, a letter after closing confirming the date the transaction was completed must be submitted.

The whole transfer process takes approximately 8 weeks. Since there is often not 8 weeks before a transaction to purchase a bar or restaurant is scheduled to close, the AGCO allows for the Buyer and Seller to apply for an Authorization to Contract Out, which is submitted with the Transfer application. This application allows for the Buyer to operate under the Seller’s liquor license until the transfer process has been completed and is typically processed within 15 business days. This authorization is effective until the transfer has been completed or it is rejected by the AGCO. Both the Buyer and the Seller are responsible for the sale of alcohol while the Buyer operates under the Seller’s license. So, it is wise for the purchase agreement to include an indemnity from the Buyer in favour of the Seller to cover the Seller while the Buyer is operating under the Seller’s license.

If you are looking to buy or sell a bar or restaurant with a liquor license, the license transition is an important aspect of the transaction to consider and a smooth transition will help the long term viability of the bar or restaurant going forward.

By Nathalie Tinti, Associate

I have been questioned by clients why they should care about maintaining their corporate records.  Businesses generally have a lot to deal with on a day-to-day basis, and the work load, especially for small businesses, can often seem overwhelming. So when Barriston LLP calls you to tell you it's time to come in to sign annual corporate resolutions, it may seem like just another headache. We've set out the top five reasons why you should get them done on a timely basis, from year to year: 

1. You don't have to meet with yourself: The Ontario Business Corporations Act stipulates that you must have an annual shareholder meeting not more than 15 months after your last one. Chances are, if you are a sole shareholder or small, closely-held company, this does not happen. Annual resolutions, signed by all of the shareholders can take the place of holding an actual meeting (with yourself!).
2. Filing Requirements: Within 15 days after every change that takes place in the information set out in your initial return (usually filed on incorporation) you must file a 'Notice of Change'. A "change" includes every change in the board of directors, officers or their residential addresses, or a change in the corporation's address. When we prepare your annual resolutions we inquire as to whether you would like to make any changes. We then document those changes in the resolutions and file the Notice of Change on your behalf.
3. Bonuses and Dividends: If any bonuses or dividends have been declared in the past year, the annual resolutions should also include a resolution approving them. Often accountants will have very explicit instructions about when a bonus or dividend is issued or declared and payable.  These dates have income tax implications, so documenting them is important.
4. Penalties for failure to file: The Corporations Information Act sets out penalties for individuals (up to $2,000) and for corporations (up to $25,000) where reporting requirements are not complied with. Directors and officers of corporations that violate the reporting requirements can be held personally liable.
5. Penalties for failure to comply: The Business Corporations Act (Ontario) stipulates that anyone who fails to comply with the requirements of the Act is guilty of an offence and on conviction is liable to a fine of not more than $2,000 or to imprisonment for a term of not more than one year, or to both, or if such person is a body corporate, to a fine of not more than $25,000. Again, officers and directors may be personally liable. 

On the sale of your business you may be required to provide your minute book for inspection by the Purchaser's solicitor. If the minute book is well-maintained, it certainly creates an image for the history and management of your entire business and may make your company more marketable. 

By Graham Knight, Partner

The law has long recognized the need to protect the goodwill that accrues to an entrepreneur carrying on business in the marketplace.   This goodwill is protected whether or not a formal trade mark is registered.

In absence of trade-mark registration the remedy for infringement of a mark, at common law, is called ‘passing off’.   While such remedy exists, there is no comparison to the privileges afforded an entrepreneur who gains trade-mark status.

In general terms, trade-marks* are an indicia of the source or quality of a product.    Trade-marks  apply to wares and/or services.    Trade-mark protection is extended by the federal government and is thus effective nationwide, provided that the applicant shows that the mark is in use, or will be used, in Canada, (as opposed to just in Barrie or in Ontario).

There are a number of stages an applicant goes through in order to obtain a trade-mark. These are:

1. Availability search – the proposed mark is searched in Ottawa to ascertain whether or not someone else has already received or applied for a mark that is the same or confusingly similar.
2. Filing - assuming the availability search is promising, a trade-mark application is filed which can be based on use or intended future use.
3. Trade-Mark Office inspection – an Examiner at Industry Canada reviews the trade-mark application as against Industry Canada’s own searches and either approves the mark or requests changes to the application.
4. Advertisement – once the trade-mark Examiner has approved the application it is advertised for a period of 90 days so that third parties may comment on the application if they wish to do so.
5. Registration – assuming no objections are received, or if opposition is received it is answered satisfactorily, the mark moves to registration.   If the mark is for proposed wares or services, one must file an affidavit indicating that same are actually being used before the mark will issue.
6. Duration - the trade-mark, once received, is valid for a period of 15 years provided that it is used continually in association with the wares and/or services claimed.

Trade marks may be words, logos, or a combination of the two.

Trade-marks may claim colour.    If you do not claim a colour, then the mark or logo representation is protected in all colours.   

There are also language considerations that apply should a French version of the mark be deemed necessary or convenient to your purposes.

The fee for a preliminary trade mark availability search is about  $600.00.   Government filing fees presently total $500.00 divided between an initial fee of $300.00, and the balance of the fee later in the process if the trade-mark application survives that far.

The cost of trade- mark applications vary because, like litigation, it is impossible to know at the outset the amount of time that will be required to complete the file.

Presently the process takes about twenty months.

*This blog relates to “ordinary marks” which are generally names businesspersons use in conjunction with wares or services. There are also “certification marks” which evidence a product or service meeting a defined standard. Finally there are “distinguishing guises” which relate to the shaping of products, their containers, or how they are presented.

By David Smith, Partner

In my years of practicing business law, I have often advised clients who had agreed to sell their business and had even agreed on a sale price. Both the client and the buyer thought it would not be unreasonable for the lawyers to be able to paper the sale in a week, or two at most.  The buyer could be a key employee, supplier or competitor.  Lets just “git 'r done” they instruct me.

Not so fast.  A first major decision, and one which is often overlooked, is whether the sale is to be a sale of shares, or a sale of assets, or some combination of them.  The seller cares because he or she may be able to utilize a personal capital gains tax exemption and save up to $350,000 in tax.  Furthermore, the company will be owned by the buyer.  All employees, contracts, etc. go with it.  No HST or Land Transfer Tax - nice and tidy.

However the buyer will normally prefer to purchase assets.  Although there may be Land Transfer Tax payable if land is involved, that is worth the cost as the buyer does not then assume product warranties, employee issues or any adverse “past history” that may be lurking below the surface in the Company – such as CRA corporate tax re-assessments.  A buyer may agree to purchase shares where it is satisfied that the Company is generally clean and it can capture business losses to be used against profits.  This “shares” vs. “assets” issue commonly results in a further negotiation of the price, and also the inclusion of holdbacks or seller debt in order to guarantee the buyer it is getting what it bargained for.

The message – make sure you have sound accounting, tax and legal advice in structuring the transaction from the outset.