Getting Business Done

By Tracey Rynard, Associate

Thank-you to all the stand-up folks who volunteer their time to charities and not-for-profits in our local communities.

If you are a director and/or member of a not-for-profit corporation (or know someone who is and want to wow them with your acquired legal knowledge) then this blog’s for you. Ontario and Canada have both seen fit recently to update sorely out of date not-for-profit legislation.

The Canada Not-for-profit Corporations Act has been in force since last October 2011. If you are a director and/or member of a Canadian not-for-profit corporation and did not know this – don’t panic – yet. Your board of directors has until October of 2014 to file articles of continuance and update your by-laws. Make note of that date though because if you have not taken any action by then the old legislation will become inactive and your not-for-profit corporation will be dissolved. Poof. Gone.

The new Ontario Not-for-profit Corporations Act,  2010  received Royal Assent in 2010 (the clue is in the title) but is not yet in force. At first, the government declared the fall of 2012 to be the timing for an in-force date. They have since reneged on that (hey, they probably have better things to do this summer than draft boring old regulations).  The expected in force date is now January 1st of next year. After the legislation is in force, not-for-profit corporations incorporated under Ontario legislation will have three years to amend their governing documents to conform to the new legislation. After three years, the corporation won’t be dissolved but any non-conforming provisions will be deemed to have been amended to conform. This isn’t as onerous as the Canadian legislation’s countdown to cancellation but I will tell you, and I could be alone in this opinion but I’m pretty sure I’m not,  that relying on non-conforming governing documents = bad.

Both federal and provincial legislation heavily rely on the influence of for-profit corporate provisions which  means  the new rules are (meant to be) better organized and more comprehensive than both their previous renderings. (Stay tuned for my future blog “How the new not-for-profit legislation did and didn’t make things better”). Please note that I said “better organized” and “more comprehensive”; I didn’t say “easier”. Corporations may undertake the task of continuing under their respective legislation themselves, however, if you are a director and your plans this summer don’t include learning the difference between a “soliciting” and “non-soliciting” corporation or  a “public benefit” and “non-public benefit” corporation (and are therefore by default more interesting than mine) I am available to answer all questions and assist you in this process.

By Joanne McPhail, Partner

Due to some broad wording in the Regulated Health Professions Act, 1991 (“RHPA”), currently, if a health professional treats his/her spouse, they could be guilty of sexual abuse and could lose their license for 5 years.  The legislation currently has zero tolerance – a mandatory 5 year license suspension for “sexual abuse” of a patient.  The definition of sexual abuse includes any sexual relationship with anyone, including a spouse.  A recent case, Leering v. College of Chiropractors of Ontario found a chiropractor guilty of the offense because he treated a woman with whom he was not married but was intimately involved.  The court deemed the treatment constituted sexual abuse under the Act, regardless of the nature of the pre-existing personal relationship. 

The Health Professions Regulatory Advisory Council has put out a report today which can be found at http://www.health.gov.on.ca/en/public/publications/ministry_reports/hprac/201206.aspx which recommends that the current law be changed to allow health professionals to treat their spouse.  As a lawyer and the spouse of a health professional, this is a long time coming, as the unintended consequences of this legislation represented a substantial risk to all health professionals and were, in this writer’s opinion, just plain silly.  Good to see that sometimes reason prevails in the end!

By David Lucenti, Associate

So, you are considering buying into a new franchise business and you have just met with the potential franchisor and things sound and look great, until the franchisor hands you a stack of documents and suggests that you take it home and review it.  All you want to do is start a new business and now you have all these documents to review.

 What do you do?

The simple answer may be to sign and return the documents to the franchisor and start running the business as soon as possible.  This is not a wise approach.  The documents given to you by the franchisor probably include the franchise agreement and disclosure document. These documents should be carefully reviewed by your lawyer so you can be properly advised of your rights and obligations as a franchisee.

In 2001, Ontario became only the second province in Canada to regulate the franchise industry.  The Arthur Wishart Act (Financial Disclosure), 2000 (the “Act”) imposes on each party to a franchise agreement a duty to act in accordance with reasonable commercial standards.  The Act imposes the following 3 key duties in each franchise agreement, whether already in existence or new: 

• each party to a franchise agreement must act fairly in its dealings with one another;
• the franchisor is not permitted to interfere with or restrict the franchisee’s right to associate with other franchisees; and
• the franchisor must provide a prospective franchisee with a disclosure document, including all material facts and financial information (my emphasis). 

The focus of this blog will be the third requirement – the disclosure document.

With respect to the disclosure document, the Act requires a franchisor to provide a prospective franchisee with an accurate, clear, and concise disclosure document at least 14 days before the earlier of the prospective franchisee signing an agreement or, making a payment.  The disclosure requirement is quite extensive and includes the following: 

• it must be a single, bound document, delivered to the franchisee at one time.  Piecemeal disclosure is not permitted;
• it must contain a certificate signed by at least 2 persons who are officers or directors;
• it must contain copies of all agreements related to the franchise.  This includes not only the franchise agreement but any sublease (and head-lease if the franchisee is bound to comply with the head-lease), general security agreement and personal guarantee.  In essence, any agreement which the franchisee will be required to sign or comply with on closing must be included in the disclosure document;
• it must include the franchisor’s financial statements on an audited or review engagement standard; and
• it must contain all material facts related to the purchase of the franchise.  The term ‘material fact’ is defined broadly as any information about a business that would reasonably be expected to have a significant effect on the value or price of the franchise or the decision to acquire the franchise.

 But what happens if their disclosure is inadequate or defective?

Under section 6 of the Act, where a disclosure document is provided but is “defective”, a franchisee has 60 days after execution of the agreement to rescind the franchise and any related agreements.

Conversely, if no disclosure document is provided or, if the disclosure document is “materially deficient” in the sense that one of the required elements of a disclosure document is missing, the franchisee has a period of 2 years after execution of the franchise agreement to rescind the agreement. Upon rescission, the franchisor must refund the money paid by the franchisee, purchase the franchisee’s remaining inventory, supplies and equipment and compensate the franchisee for losses relating to acquiring, setting up and operating the franchise. 

Although each case is different and must be assessed in light of the requirements of the Act, the courts have been very stringent in insisting on proper disclosure by franchisors. 

In my opinion, the solution is simple. Before letting the excitement of starting your own business get the best of you (and your investment!), I suggest you consult with your lawyer before signing any documents provided to you by the franchisor. The cost of having your lawyer read and explain to you your rights and obligations under the agreement could potentially save you the cost of protracted litigation later on.

by Jennifer Craddock, Partner 

The Repair and Storage Liens Act (the “RSLA”)... I know what you are thinking: It is not the prettiest or the fanciest or the most exciting Act in Ontario...  Or is it? You might be surprised to know that this girl (and I'm referring to the Act) packs a good (legal) punch and it’s one of the most useful Acts available when a client doesn’t receive payment for repair or storage services rendered to a customer, a tenant or another third party.

In general, repair and storage liens pursuant to the RSLA have priority – yes, priority! - over any other interest in the same article of personal property. Unlike other forms of lien - such as construction liens - liens pursuant to the RSLA do not have to be registered within a certain period of time. In fact, a possessory lien does not have to be registered at all.

A lien under the RSLA can be enforced by selling or retaining the article(s) in question depending on the wishes of the lien claimant. Although the provisions of the RSLA with regard to notice must be strictly adhered to, a sale or retention can be conducted by a lien claimant without starting a proceeding or obtaining a court order. In essence, the process may well prove to be less costly, more efficient and more effective than other remedies that might otherwise be available.

While the RSLA deals with both possessory and non-possessory liens and is useful in many situations, I think you all know the old adage...Possession is nine-tenths of the law.

So the moral of this story?

Hold onto possession of those items you just repaired or stored

until you have been paid in full and oh yeah...

don't judge this Act by her cover ;)

You have incorporated an Ontario Corporation, you have seen to the set up of officers, directors and shareholders but now realize that you can’t in fact get into business without a ‘Business Number’ and an HST registration.

Can your lawyer or accountant help you, or can you deal with this problem yourself?  Your answer is maybe and maybe.

Your lawyer and accountant will find that they won’t get anywhere with CRA because of privacy laws, without submitting a ‘Business Consent Form’ signed by the incorporator….Then your advisor or you yourself should decide to go it alone should do the following:

1. Make a note of the proper name of your Company, the date of incorporation and the Ontario Corporation number.
2. Obtain the social insurance numbers, full names and addresses of all Directors.
3. Call Canada Revenue Agency 1-800-959-5525 and advise that you are looking for your Business Number so that you can register for HST.  (Hours of service 8:15 a.m. to 8:00 p.m.)
4. Canada Revenue Agency will look up your Company, provide you with the Business Number and then ask you a series of questions so that you can register for HST.
5. CRA website provides a Business registration Online (BRO) Service but unfortunately this is currently NOT available for Federal or Ontario incorporations.

The present practice of the Ministry of Government Services (Ontario) on incorporation is to assign you an Ontario Corporation Number and automatically provide that number to Canada Revenue Agency with particulars of your incorporation.  CRA will produce the BN (Business Number) which is the base number for the federal numbering system for HST.  It does take a few days to produce this number following an incorporation.

Posted by Graydon Ebert, Associate

Spring is often considered a time of new life. New plants are blooming, new wildlife born. I am experiencing this firsthand as the newest member of the Barriston team. Even this blog itself is in its infant stages of new life. After being wonderfully written by Joanne McPhail in the past, she will now be assisted by contributions from the entire Barriston Business Law department.

For many people, this new life will take the form of a fresh and exciting business idea or opportunity. While plans are feverishly being put together to get this business off the ground, one of the most important considerations that must be made is how the business will be structured. There are three typical business structures: sole proprietorships, partnerships and corporations. All of these structures have their own advantages and disadvantages and there is no hard and fast rule as to which structure is right for each individual business.

If the business will be owned by one person, sole proprietorship is a possible option. There are no formalities in law required to start a business as a sole proprietor because the business there is no legal separation between the business and the owner. Everything the business owns and owes is owned and owed by the actual human being who owns the business. This lack of legal separation has implications from both a tax and liability perspective that must be considered before choosing this option. For example, income of the business is taxed in the hands of the owner at the owner’s marginal tax rate. There is one legal formality that must be done if the owner wishes to operate the business under a name other than his or her own. This name must be registered with the Ontario government.

If two or more people are going to be involved in the business, it could be structured as a partnership. Much like a sole proprietorship, there is no legal separation between the business and the owner. The partnership is not a separate legal entity from its owners. A partnership cannot enter into contracts in its own name, and the partnership name must also be registered with the Ontario government. Much like a sole proprietorship, the income of the partnership is taxed in the hands of the owners, although an additional tax form must be filed on behalf of the partnership. Also like a sole proprietorship, there is no limit on a partner’s legal liability for acts of the business, subject to some specialized exceptions.

Regardless of how many people will be involved in the business, incorporation is often the preferred option. Rather than owning the assets of the business, the people involved in the business would own shares, which can be subject to conditions that they choose and are more easily transferable. Corporations are separate entities at law, which can be an advantage for tax and liability purposes. Unlike people, corporations don’t die, and continue on even after the principal shareholders pass away. However, since corporations are separate legal entities, there are additional costs to create and maintain them at law that are not applicable to sole proprietorships or partnerships.

If you are starting a new business, please contact one of Barriston’s Business Law professionals to discuss which structure is best suited to your needs and to assist you in getting your business off the ground.