By Joanne McPhail, Partner, Certified Specialist in Corporate and Commercial Law at Barriston LLP, and

Reginald Brown, Articling Student at Barriston LLP.

There is growing support for the principle that what employees write on social networking sites can indeed result in disciplinary action from their employers. This is true of an employee’s conduct both in and out of the workplace. As social networking sites continue to grow in popularity, many courts and administrative tribunals have already considered whether employers are justified in terminating employees for their off-duty conduct, be it for making disparaging remarks about an employer or fellow employees outside of the workplace, or even for making comments that may not align with an employer’s policies or expectations.

Regardless of the scenario, the main question a court or a tribunal will commonly ask is whether the degree of discipline imposed by the employer is an appropriate penalty given all the circumstances of the case. This is fact specific and will therefore vary from one case to the next. What is clear, however, is that postings on social networking websites are not considered private, even when an employee has taken steps to ensure that their posts are unavailable to the public (i.e. through restricting access, through private messaging, etc.).

To justify disciplinary action for an employee’s off-duty conduct, which includes social networking activity, an employer must consider whether the conduct is sufficiently business related so as to be harmful to the employer’s business interests and environment. Discipline may also be warranted when the postings made are so damaging that they poison the workplace and make it difficult for the employee to work productively with other employees or for the company.

The fact that a disciplined employee was under a misapprehension about who could access their Facebook or other social networking profile, will not relieve them from responsibility for what they have written. Even if postings are restricted to or made between friends online, this is not a guarantee of privacy, as there is nothing to prevent friends from forwarding messages to other individuals. Nor will it matter if the postings were made outside of working hours or with a non-work device, as social networking activity becomes a workplace issue when there is a real connection between the workplace and the postings in question.[1]

To avoid these issues, employers may wish to consider implementing workplace policies explaining the potential consequences of employee misconduct on social networking sites, as many are unaware that what happens on Facebook does not necessarily stay on Facebook.

[1] Canada Post Corp. v. Canadian Union of Postal Workers (Discharge for Facebook postings Grievance), [2012] C.L.A.D. No. 85. 

By Joanne McPhail, Partner, Certified Specialist in Corporate and Commercial Law at Barriston LLP, and

Reginald Brown, Articling Student at Barriston LLP.

Exemption for an Executive Officer

Generally speaking, Executive Officers are exempt from Workplace Safety and Insurance Board (WSIB) coverage. This is in accordance with the Workplace Safety and Insurance Act (WSIA), which states that the WSIB insurance plan does not apply to workers who serve as Executive Officers of a Corporation. As a result, Executive Officers are not obligated to pay WSIB premiums and may instead apply to the WSIB for optional insurance coverage if they desire to do so.[1]

Exemption for an Executive Officer in the Construction Industry

Following changes to the WSIA, it is mandatory that independent operators, sole proprietors, Partners and Executive Officers involved in the construction industry have WSIB coverage. However, ONE Executive Officer in each company may be exempt from coverage if:

a)      the individual is an Executive Officer; and

b)      the Executive Officer does not engage in any construction work.

“Construction work” means any skilled or unskilled manual work, the operation of equipment or machinery, or the direct on-site supervision of workers. Periodic site visits are permitted, provided the Executive Officer does not perform any construction work while on the site.

Executive Officers who satisfy WSIB’s criteria and who do not do construction work may request an exemption from compulsory coverage by completing Form 1208WA.[2]

WSIB’s Criteria for “Executive Officer”

The WSIB considers Executive Officers to be a select group of individuals who control the direction of the company, rather than just a department or a branch of the organization. The key to Executive Officer status is that the person be empowered or appointed to act as an Officer of the organization. The WSIB reserves the right to determine who is an Executive Officer by reviewing the person’s responsibilities and authority within the Corporation.

Title alone does not make an individual an Executive Officer. If the individual is not empowered by the organization to act as an Officer, the WSIB will not determine them to be an Executive Officer. If you are incorporated and you consider one (or more) of the individuals on your payroll to be an Executive Officer, you should be able to demonstrate that the individual in question:

a)      holds a position as Member, Chair, or Vice-Chair of the Board of Directors or serves as President, Vice-President, Chief Executive Officer (CEO), Chief Financial Officer (CFO), Chief Operating Officer (COO), Secretary, Treasurer or General Manager of the Company;

b)      is named in the Corporation’s minute books as holding one of the positions listed above;

c)      is enumerated, appointed or empowered to act as an Officer of the Corporation through corporate documents such as Articles of Incorporation, Charters, Bylaws and/or corporate profile reports filed with a federal or provincial agency;

d)      actually performs the duties and executes the responsibilities of an Executive Officer; and

e)      has significant functional responsibilities, demonstrating that the individual is in fact a “directing mind” and/or is wholly or partially responsible for the Corporation as a whole.[3]

Conclusion

To summarize, Executive Officers are generally exempt from WSIB coverage. Now, coverage is mandatory for Executive Officers in the construction industry, but construction employers with multiple Executives may exempt one Officer if that person does not perform construction work.   

Regardless of the industry they are involved in, employers should ensure that their Executives satisfy the WSIB’s criteria detailed above, as title alone does not make an individual an Executive Officer. As mentioned, the WSIB has the right to determine who is an Executive Officer by reviewing the person’s responsibilities and authority within the Corporation as well as Corporate documents empowering the individual to act as an Officer of the Company.

Written by Joanne McPhail, Partner, Certified Specialist in Corporate and Commercial Law at Barriston LLP, and

Reginald Brown, Articling Student at Barriston LLP.

The new Canadian anti-spam legislation (CASL) is expected to come into force on July 1, 2014, and it will prohibit the sending of unsolicited commercial electronic messages (CEMs), which are messages that encourage participation in a commercial activity. CEMs will be prohibited whether they be in the form of emails, texts, social media, or any other form of telecommunication.

However, a person will be able to send CEMs without violating CASL if the recipient has consented to receiving them. To get consent, the sender must deliver a preliminary message that identifies the sender by name, provides their business contact information, and directs the recipient to an unsubscribe mechanism or opt-out option enabling them to decline receiving messages in future.

In certain instances, the recipient’s consent will be deemed to be implied, for instance, if the sender and the recipient have either an existing business relationship, such as a relationship formed by contract or a business investment, or an existing non-business relationship, such as a relationship formed by membership in a club.

Next, CASL also prohibits a person from altering the transmission data in a CEM and causing it to be delivered to a destination other than that specified by the original sender unless the original sender or the recipient of the message consents to the alteration. As an example, it may be appropriate to give consent when an employee consults a company mailing list and sends the CEM to more clients or customers than their employer initially intended, especially if the CEM may be of interest to the added recipients.

Lastly, CASL bars a person from installing a program on any other person’s computer system if the program interferes with the user’s controls or settings (i.e. spyware), that is unless the user expressly consents to the installation. Before consent can be given, however, the installer must explain to the user the function and purpose of the program as well as the effects of installation.

Every person found to have violated CASL is liable to a maximum penalty of $1,000,000 for individuals and $10,000,000 for any other person (i.e. a corporation). Furthermore, an employer may be liable for a violation of CASL by an employee acting within the scope of their employment unless the employer can establish that they exercised due diligence to prevent the misconduct.    

For more information, please visit www.fightspam.gc.ca.         

By John Cockburn, Partner

For three years I have served on the Board of a Charitable Corporation which I know was incorporated without share capital under the provisions of the Federal Canada Corporations Act.  There have been rumblings recently around our boardroom table that we have to do something special because of new federal legislation.  Is that true?

Also, we don’t really like the name of our Charity as it does not describe our main charitable activities.  How can we change that name a little bit?

The rumblings are true, the Canada Not-for-Profit Corporations Act (CNCA) came into force October 17, 2011 and your Charity has until October 17 of 2014 to transition…..or to continue into the new Act.  If you fail to meet the deadline, your Charity’s corporate status may be dissolved.

You must arrange to file “Articles of Continuance” along with the other required supporting materials.

You will want to review your existing By-laws to be certain that they are in line with the new CNCA requirements.

You can change the name of your corporation as part of the continuance process….supported of course by an appropriate name search report.

Don’t leave it too long to get your lawyer started on the continuance process.

By John Cockburn, Partner

You have been approached by a stranger (or a friend) and asked to consider selling your successful business to that person.  Neither you nor he want to waste money on a lawyer to put together any formal agreement until you have sized each other up and know you both want to proceed.

You have heard your friends boast about how easy it is to whip up a layman's “Letter of Intent” (LOI) to tide you over until you are ready to spend money on a lawyer.

Is this a good idea?......NO WAY!  Although an LOI has its place, there are two very significant considerations:

1.    If important terms are omitted from the LOI it is virtually impossible to work them into the ultimate “Agreement”, without losing credibility “that’s not the deal we discussed!”

2.    If the LOI is not very carefully drawn and you decide not to proceed further, you run a very real risk that the Courts will permit the stranger to enforce the LOI as a contract against you.

The Ontario Court of Appeal recently did just that and it cost the potential vendor hundreds of thousands of dollars in costs to learn that his homemade document - the parties called a Letter of Intent - was indeed an enforceable contract!

By Graydon Ebert, Associate

As its name suggests, a shareholders’ agreement is an agreement, among some or all of the shareholders of a corporation. But what is its purpose?

The Business Corporations Act allows for two or more shareholders to make an agreement in writing providing that when the shareholders exercise their voting rights with respect to their shares, they shall be voted as provided in the agreement. One example of a use of such an agreement may be that two or more minority shareholders of the corporation may agree to vote together on the appointment of directors of the corporation so their collective voting power may be stronger than their individual voting power.

More commonly, especially in private corporations with multiple shareholders, you will see all of the shareholders of a corporation agree, in writing, to a unanimous shareholder agreement. The Business Corporations Act provides that a written agreement among all the shareholders of a corporation may restrict in whole or in part the powers of the directors to manage or supervise the management of the business and affairs of the corporation.

The default for a corporation is that it is managed entirely by the directors (who are elected by the shareholders) and by the officers who are appointed and supervised by the directors. Essentially, a unanimous shareholder agreement allows the shareholders of a corporation to change that default and it gives the shareholders the power to manage or supervise the management of the corporation to the extent that the agreement allows. The agreement may allow for shareholder consent for changes to the constating documents of the corporation, any issuance or allotment of shares, any purchase or sale of real property, or any number of decisions typically made by the directors of a corporation.

In addition to restricting the power of the corporation’s directors, or setting out how shares may be voted, a unanimous shareholders agreement will often address several other important issues, like:

• How shareholder loans may be paid out;
• How shares may be dealt with upon the death, insolvency or marital breakdown of a shareholder;
• Provisions dealing with the purchase/sale of shares by a shareholder, i.e. rights of first refusal, forced buy/sale, requirements for a sale to a non-shareholder, etc.;
• Dispute resolution mechanism for dealing with shareholder disputes; and
• Provisions limiting a shareholder’s right to compete with the corporation or solicit clients or employees from the corporation.

Some other important things of note about unanimous shareholder agreements:

• A transferee of shares subject to a unanimous shareholder agreement shall be deemed to be a party to the agreement as if he/she signed it (although a purchaser, who is not a current shareholder, for value without notice of the agreement may rescind the purchase within 60 days after the purchaser actually receives a complete copy of the agreement);
• A shareholder who is party to a unanimous shareholder agreement has all the rights, powers, duties and liabilities of a director of the corporation to the extent that the agreement restricts the discretion or powers of the directors to manage or supervise the management of the business of the corporation and the directors are relieved of their duties and liabilities;

So, when should the shareholders of a corporation enter into a unanimous shareholder agreement? Unless the corporation is operated by and the shares are owned by only one person, a unanimous shareholder agreement in some form is usually a good idea. It is especially important in small private corporations owned by a small number of shareholders, or where a corporation previously owned by one person is taking on investors. The success of small private corporations is usually dependent on the people who control these businesses. Unplanned events can lead to changes in share ownership of a corporation that can negatively impact this success.  A shareholders’ agreement, which has restrictions on how and to whom shares can be transferred can be the best way to plan for the future of the corporation while protecting shareholders from unfavourable business transition or operational possibilities.

If you need advice on whether a shareholders’ agreement might be a good idea for your business, our business law professionals would be happy to discuss your options with you.

By Graham Knight, Partner

The Importance of Association

There is nothing more important in your business future than careful choice of those you associate with.  Successful ventures generally are made up of different people with different talents, and the most important qualities these people can possess are honesty, respect, a willingness to work hard, and a general disinterest in taking the credit for things that go well.  The joke around our firm for years has always been that we “stab each other in the front”.  If the character of the people you choose to work with is substandard, you will pay for that choice.  The question is only when.

Knowing your Business and the Business Side of your Business

Over my 30+ years of practicing business law, I have often seen business trouble or failure arising from the principals not studying the business of their business.  Stated another way, you may be the best computer technician in Ontario, but if you do not spend serious time looking at the mechanics of your business, including receivables, payables, plans for the future and the like, you may find yourself in trouble.  It is not necessary that everyone in your business be an expert on the accounting/financial/planning end, however, it is prudent that everyone in your business has a good working knowledge of same and makes a point of keeping in touch.

Another sad story that one sees far too often starts with a division of responsibilities in a business where, one person is out doing the job with the public, and the other manages the office or looks after the financial side.  If the person out in the field does not keep in touch with the business side, abuse can and does arise.  Whether or not you find the business side of your business exciting or boring, you will find that the return from your business will improve markedly if it is run properly.

The Importance of Good Advisors

It is vital to seek out competent professional assistance, particularly in the area of accounting/tax, banking, insurance, and law.  When you are starting a business, ask your associates or even competitors who they consider to be good and take the time to visit these advisors and get to know them.  A good advisor will return your calls promptly, offer you professional service that meets your needs, (not more or less than your needs), and is proactive to the extent that instead of simply answering the questions that you raise or doing jobs that you request, they will look a few moves down the board, anticipate where you are going, and make suggestions now to help your business in the future. 

Your advisors should stick to their area of expertise.  We see accountants doing legal work, lawyers doing accountant’s work and insurance agents also getting involved in areas that are not their primary expertise.  Form a team and let that team know that you expect them to work together for your benefit.  Always remember that you are the boss of the team.

I regularly provide client’s accountants with a “heads up” letter of what I am intending to do so the accountant not only knows what is going on with his/her client, but is in a position to add value if, for example, from a tax point of view, the accountant thinks some aspect of the proposed course should be more closely scrutinized.

A good advisor will give you advice in language you understand.  Be careful if you are receiving communications full of big words and bafflegab.  I am of the view that someone that really knows their trade can get the relevant points across to you in simply language.

Most businesses are short of funds when starting out and are consequently reluctant to seek professional input.  In my view, it is worth investing an hour with an accountant, a lawyer, and an insurance agent so that you establish a professional relationship, and can take suggestions from them as to how to appropriately launch your business.  It is easier to do something right the first time than it is to come back later and try to patch things up. Also, when you need to call them with a serious issue, they will be taking a call from a client, not a cold call.

By David Lucenti, Associate

I was recently contacted by a corporate client who runs a successful roofing business in Ontario.  He advised me that a company from British Columbia had recently entered the Ontario market with an intention to compete with his business.  My client was not calling me to seek advice on how he could best protect his business from competition but rather, he was concerned about the corporate name under which this new company was to operate.  He believed that their corporate name was too similar to his company’s name. 

My client has been in the roofing business for over 25 years in Ontario.  During that time, he has continuously advertised, promoted and used his company’s name in the normal course of business in Ontario, so much so that the corporate name has generated significant goodwill and reputation in Ontario.  As such, my client felt that by introducing a company name similar to his in the same Ontario market where he operates his business will likely deceive and/or confuse both suppliers and customers alike.  I agreed. 

Luckily, there are remedies available to my client under the Ontario Business Corporations Act (the “Act”).  The corporate name provisions are set out in section 9 of the Act and subsections 1-22.1 of the Regulations to that Act. 

Section 9 prohibits a corporation from having a name that is the same as, or similar to, the name of a known body corporate, or the known name under which any body corporate carries on business or identifies itself (it’s “trade name”), if the use of that name would be likely to deceive. 

In the event a party believes that a name is likely to deceive, the company can bring an application to the Director under section 12 of the Act.  The Director may, after giving the offending corporation an opportunity to be heard, issue a certificate of amendment to the articles changing the name of the corporation to a name specified in the certificate and, upon the issuance of the certificate of amendment, the articles are amended accordingly. 

There are however, various factors to consider when determining whether a name is contrary to section 9 of the Act.  Section 3 of the Regulations lists the following factors the Director may consider: 

• The distinctiveness of the whole or any element of any name or trade-mark and the extent to which the name or trade-mark has become known;
• The length of time the trade-mark or name has been in use;
• The nature of the goods or services associated with the trade-mark or the nature of the business carried on under or associated with a name, including the likelihood of any competition among businesses using such trade-mark or name;
• The nature of the trade with which a trade-mark or name is associated, including the nature of the goods or services and the means by which they are offered or distributed;
•  The degree of similarity between the corporate name and any trade-mark or name in appearance or sound or in the ideas suggested by them; and
• The geographical area in Ontario in which the corporate name is likely to be used.

In my client’s situation, I am pleased to report that before bringing an application, the offending party agreed to amend its Articles and change their corporate name.  It was a positive outcome for my client but there are many instances when a party is not so cooperative.

By John Cockburn, Partner

Our little company has grown to the point that our home can no longer accommodate our office needs so we have just leased the perfect office space on Collier Street in Barrie in an older but immaculate home.  There are only 6 steps up to our front porch which is the only access we have.  Both male and female washrooms are available for our use in the basement of this old house and they are also available to our clients.

After we signed a 5 year lease, we heard rumors that there is some sort of legislation in Ontario mandating certain accessibility standards for persons with disabilities….Is that true?

Does it sound like our little office is compliant?

Is the new Act really enforced?

Let’s start with your last question, the answer is: the Act is going to be enforced and is currently enforced with fines and orders.  It does not sound like your office would be compliant with the requirements of the new Act but you must, on a case by case basis, review the requirements of that Act and protect yourself from enforcement by making the required physical changes to your office property and buildings to comply.

There are a growing number of businesses that can assist you with interpreting the Act and bringing your premises into compliance.  You will want to work with your Landlord on those matters.  And take a look at the AODA Compliance Wizard to help you determine what you need to do to comply with the law. 

By Graydon Ebert, Associate

Recently our firm has acquired a collection of minute books from a local corporate lawyer and we are in the process of contacting the corporate owners of these books to notify them of their new location.

If you are a new business owner or thinking about starting a business, or even if you have been in business for years, you might be asking yourself, what is a minute book? Do I need one? What is it used for?

A corporation’s minute book is the official record of the corporation. Essentially it is a binder that contains all the importation information of the company all in one place. It holds the corporation’s articles of incorporation, its by-laws, and minutes of all company meetings. It holds all corporate resolutions, for such things as the election of directors, appointment of officers, authorization of any security documents, etc. It also has various registers showing current and former directors, officers, shareholders, and any share transfers that may have taken place. If the shareholders of the corporation have entered into a shareholders’ agreement, it should be kept in the minute book, as well as any notices and registrations filed with the government. The minute book is typically where the share certificates for the corporation are held, though the corporation may choose to put the original certificates in a more secure location, with only photocopies kept in the minute book.

While this may seem like a lot of work for a small corporation, having and maintaining a corporate minute book is very important. Most importantly, the corporate legislation, both in Ontario and for federal corporations, requires that all corporations keep corporate records and be able to provide them to shareholders upon request. Failure to keep up to date records may also cause delays and difficulties in the future when the corporation wishes to proceed with significant transactions such as share transfers, investments by third parties, or loans from financial institution. Time and money will need to be spent to bring the corporation up to date or to properly document certain corporate events.

Where should you keep your minute book? Typically for corporations that we represent, we keep the minute book at our office, but if you wish to have keep the book yourself, we suggest that it be kept in a safe, secure place at the corporation’s head office.

If you have a corporation and your minute book is not up to date, or you going to be incorporating a corporation soon and want to ensure that your records are properly kept, we can help get you on the right track, and keep you there!

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.

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.