Session notes: legal filing and entity structuring

These are the notes from the session on Thursday, July 16 at 6:00 p.m., part of the programme.

The July masterclass was taught by two practising lawyers from a small Edmonton firm whose work is mostly incorporations, shareholder agreements and commercial leases. Seventeen came. Seven members incorporated within a month, four under the Alberta Business Corporations Act and three federally, and the shareholder-agreement segment ran forty minutes over because nobody would let it end. These are the notes, and they are not legal advice.

The four options, honestly

A sole proprietorship is you, trading. Cheapest, simplest, and you are personally liable for everything the business does. A partnership is two or more of you, trading, and each of you is liable for what the others do, which the lawyers described as “the structure people fall into by accident and regret on purpose.” A corporation is a separate legal person: it owns the business, you own shares in it, and your liability is generally limited to what you put in.

For a physical product business the lawyers were clear: the moment you have inventory, a supplier contract, or a product that could hurt someone, incorporate. The liability shield is the point, and it costs a few hundred dollars and an afternoon.

ABCA or CBCA

Alberta or federal. The federal corporation gives you name protection across Canada and is marginally more paperwork; the Alberta corporation is simpler and enough for most of the room. The lawyers’ rule of thumb: if you will sell under your brand name in other provinces within two years, go federal for the name protection. If not, Alberta.

Nobody in the room needed a Delaware anything, and one of the lawyers asked that this be written down, because the internet keeps telling Canadian founders otherwise.

Numbered or named

A numbered company is a corporation whose legal name is its registration number. It is faster to set up, and you trade under a registered trade name. A named corporation has the brand in its legal name. The practical difference is small; the emotional difference, one member said, was that she had been putting off incorporating for a year because she could not decide the name, and the numbered company let her stop.

The shareholder agreement

If there is more than one of you, this is the document that matters most and the one founders skip. It says what happens when one of you wants out, dies, divorces, stops working, or wants to sell. The lawyers’ line: “Every clause in a shareholder agreement is a conversation you would rather have now, for free, than later, for money.”

Who decides what: which decisions need both of you, which need one.
What happens to shares if one of you leaves, and at what price.
Vesting, if one of you is doing the work and the other put in the money.
A dispute process that is not “go to court”.

The contracts you will sign this year

The last segment walked through three documents: a supplier agreement, the lease on a commercial unit, and a first wholesale account. For each, the three clauses to find before you sign.

Document	Find these first	Why
Supplier agreement	Payment terms, defect remedy, IP ownership of your moulds	Who owns the tooling you paid for decides whether you can leave
Commercial lease	Personal guarantee, escalation, demolition clause	The guarantee follows you home; the demolition clause can end the lease
Wholesale account	Payment terms, returns, exclusivity	Net-60 on a product you paid for net-30 is a cash-flow problem you signed up for
Vendor onboarding form	Insurance certificate, GS1 UPC, chargeback schedule	The $2M liability policy costs about $600 a year; not having it costs the account

Protecting the product

Trademarks protect the name and the mark; register them if the brand matters, and it usually does. Industrial design protects the look of the thing, for a while. Patents were, in the lawyers’ words, “probably not for anyone in this room yet”, because the cost is high and the enforcement costs more. What is worth protecting first is the name.

The calendar

The last ten minutes were a list of the filings that catch people out, because none of them is hard and all of them have a deadline.

A City of Edmonton business licence, for everyone, sole proprietors included. The home-based licence is a different, restricted one, and it may not allow a buyer to visit.
An Alberta corporation files through a registry agent and must file an annual return every year, or it is struck.
A federal corporation must also register extra-provincially in Alberta before it does business here.
A CRA business number, and the RM import account on it, belong on the checklist before the first shipment, not after.

If you want a lawyer’s or an accountant’s eye on your own situation before the next session, Business Link offers free advising and consult hours; two of the seven who incorporated went there first.

The internet keeps telling Canadian founders they need a Delaware C-corp and an 83(b) election. Neither exists here. Please write that down.

The filing checklist and the shareholder-agreement questions are at the front desk. Two of the seven who incorporated after this session did it at the desk the following Tuesday, together, which is the kind of thing that happens on this floor and nowhere else.