Most business problems are easier to prevent than to fix. Clear structure and clear agreements at the start save time, money and relationships later. Whether you are a sole proprietor, a partner, a family business or an incorporated company, we explain each step in plain language.
How we can help
- Choosing a business structure and incorporating under the BC Business Corporations Act
- Shareholder agreements and partnership agreements
- Buying or selling a business, from the offer through to closing
- Reviewing and negotiating commercial leases
- Contracts and the everyday agreements a business relies on
- Succession and exit planning, working alongside your will and estate plan
Starting a business
One of the first decisions a new owner makes is how the business will be structured. The structure affects who is responsible for the business's debts, how decisions are made, how the business is taxed and how easily it can bring in partners or investors later. There is no single right answer. The right choice depends on what you are doing, who is involved and where you want the business to go.
Sole proprietorship
The simplest option. You and the business are the same legal person: you own the assets, you sign the contracts and you are personally responsible for the debts. Many owners start here. If you operate under a name other than your own, the business name is registered with the province.
Partnership
Two or more people carrying on business together with a view to profit. A partnership is easy to form, sometimes without meaning to, and each partner is generally personally responsible for the partnership's obligations. That is why a written partnership agreement matters. It sets out how profits are shared, who does what, how decisions are made and what happens when a partner wants to leave.
Incorporation
A corporation (a "company") is a separate legal person from its owners. It can own property, sign contracts, borrow and be sued in its own name. Its owners, the shareholders, are generally not personally responsible for the company's debts beyond what they have invested, although lenders and landlords often ask owners to sign personal guarantees anyway.
In British Columbia, companies are commonly incorporated under the Business Corporations Act, the provincial statute that governs how companies are created, run and dissolved. Incorporating federally is also possible, and we can talk through which fits your plans.
Incorporating is more than filing a form. We help with:
- Choosing and reserving a company name, or using a numbered company
- Preparing the incorporation application, the notice of articles and the company's articles (the internal rules that govern shareholders, directors and meetings)
- Designing a share structure that suits how the business will be owned, funded and eventually passed on
- Organizing the company after incorporation: confirming the directors and appointing officers, issuing the first shares, approving the form of share certificate and assembling the minute book at the records office
- Keeping the company in good standing, including annual filings with the corporate registry and resolutions for changes in directors, officers or shareholders
Your accountant plays an important role in this decision, particularly on tax. We are glad to work with them so the legal and financial pieces line up.
Shareholder and partnership agreements
When a business has more than one owner, the most important document is often the one that deals with what happens when the owners disagree, or when one of them wants out. A shareholder agreement (for a company) or a partnership agreement (for a partnership) is a private contract between the owners that fills in what the statute and the company's articles leave open.
A good agreement is written while everyone is getting along. It typically covers:
- Decision-making: which decisions need a simple majority and which need everyone's consent
- Money in: what each owner contributes, and what happens if the business needs more
- Money out: how profits are distributed and how owners are paid
- Transfers: whether an owner can sell to an outsider, and whether the other owners get the first chance to buy (a "right of first refusal")
- Exits and triggering events: what happens if an owner dies, becomes unable to work, separates from a spouse, goes bankrupt or simply wants to leave, and how their interest is valued and paid for
- Deadlock: a way to break a stalemate, including buy-sell provisions such as a "shotgun clause", where one owner names a price and the other must either buy or sell at that price
- Confidentiality and competition: what an owner can and cannot do with the business's information and customers after leaving
We draft new agreements, review agreements you have been asked to sign, and update older agreements when the ownership or the business has changed.
Buying or selling a business
Buying or selling a business is a significant transaction with a lot of moving parts. Our role is to make sure you understand what you are buying or selling, to document the deal properly and to see it through to closing.
Asset purchase or share purchase?
The first structural question is whether the deal will be for the assets of the business or for the shares of the company that owns it.
- Asset purchase
- The buyer purchases specific things the business owns: equipment, inventory, the business name, customer lists, goodwill and chosen contracts. The seller's company keeps anything not included, along with its history and most of its liabilities. Buyers often prefer this because they can leave unknown problems behind. Each asset and contract has to be transferred individually, and some contracts, such as a lease, may need the other party's consent.
- Share purchase
- The buyer purchases the shares of the company itself. The company continues as it was, with its name, contracts, licences, employees and history intact, including its past liabilities, known and unknown. Sellers often prefer this route. Because the buyer takes the company as a whole, careful due diligence and well-drafted representations and warranties are especially important.
The two routes have different tax consequences for the buyer and the seller, which is one reason the structure is usually settled early, with input from your accountant.
Due diligence
"Due diligence" means checking, before you are committed, that the business is what it appears to be. Depending on the deal, that can include reviewing financial statements, contracts, the lease, licences and permits, employee arrangements, intellectual property and any litigation. We also run searches to see whether anyone has registered a security interest over the business's assets or the company's shares, so the buyer knows what has to be paid out or discharged before closing.
The agreement and closing
The purchase agreement sets out the price and how it is paid, what is included, the conditions each side must satisfy, the promises each side makes about the business (the "representations and warranties") and what happens if those promises turn out to be untrue. It commonly deals with the transition as well: whether the seller stays on for a period, whether employees carry over, and whether the seller agrees not to compete.
At closing, we prepare and exchange the documents that actually transfer the business, arrange for existing charges to be discharged, handle the flow of funds and make sure the necessary registrations are completed. For a share purchase, that includes updating the company's central securities register and records.
Commercial leases
For many local businesses the lease is the largest financial commitment they will make, and it usually runs for years. Commercial tenancies are not covered by the same protective rules as residential tenancies, so the written lease is what governs the relationship. Once it is signed, it is difficult to change.
We review leases before you sign and negotiate terms with the landlord on your behalf. Points we look at closely include:
- Term and renewals: how long the lease runs, whether you have options to renew and how the rent is set when you do
- Rent and additional rent: what is included in the base rent and what else you pay, such as a share of property taxes, insurance and operating costs (a "net" or "triple net" lease passes most of these on to the tenant)
- Permitted use and exclusivity: what you are allowed to do in the space and whether the landlord can lease nearby space to a competitor
- Repairs and improvements: who maintains what, who pays for tenant improvements and what condition the premises must be in when you leave
- Assignment and subletting: whether you can transfer the lease if you sell the business or need to move
- Personal guarantees: whether the owners are personally responsible if the company cannot pay, and whether that guarantee can be limited
- Default and termination: what counts as a breach, how much notice you get and what remedies the landlord has
Contracts and everyday agreements
Businesses run on agreements: with customers, suppliers, contractors, employees and each other. A contract does not need to be long or complicated to be effective, but it does need to say clearly what each side has agreed to do and what happens if things change. We prepare and review:
- Service agreements and standard terms and conditions for your customers
- Supply and distribution agreements
- Independent contractor and consulting agreements
- Employment offers and agreements
- Confidentiality (non-disclosure) agreements
- Loan agreements, promissory notes and security documents between businesses or between a business and its owners
- Licensing and other agreements for the use of a business's name, content or intellectual property
If a dispute has come up under an existing contract, we can review the document, explain your position in plain terms and help you decide on a sensible next step.
Succession and exit planning
Every owner leaves the business eventually, whether by sale, retirement, illness or death. Planning for that ahead of time protects the value you have built, and the people who depend on it.
Exit planning brings business law and estate planning together. It can include:
- Provisions in a shareholder or partnership agreement that set out what happens to an owner's interest on death or incapacity, and how it is paid for
- A will that deals with your shares or business interest and gives your executor the authority to keep the business running while the estate is administered
- A power of attorney so that someone you trust can make business and financial decisions if you are unable to
- Share structures and agreements that allow a gradual transition to family members or key employees
- Preparing the business for sale so that the records, contracts and ownership are in order when a buyer looks at them
Because these pieces need to work together, we can handle the business agreements and the personal estate documents as one plan. Read more about wills, powers of attorney and estate planning.
Common questions
Do I need to incorporate?
Not necessarily. Many businesses operate successfully as sole proprietorships or partnerships. Incorporation makes the most sense when there is meaningful risk of liability, when you plan to bring in partners or investors, when the business will hold significant assets or when your accountant sees a tax advantage. We can walk through the trade-offs with you and your accountant before you decide.
What is the difference between a company's articles and a shareholder agreement?
The articles are the company's own rules, kept with its records at the records office, and they bind the company and everyone who becomes a shareholder. A shareholder agreement is a private contract among the shareholders (and usually the company) that can go further than the articles: it can deal with exits, deadlock, funding and personal commitments between the owners. Most companies with more than one shareholder benefit from having both.
Should I have a lease reviewed before I sign it?
Yes. A commercial lease is a binding, long-term contract, and the landlord's standard form is written with the landlord's interests in mind. A review before signing lets us flag the terms that carry the most risk for you and, where possible, negotiate changes. After signing, your options are much narrower.
More general questions are answered on our FAQ page.
Preparing for your first meeting
Bring what you have: any existing incorporation documents or agreements, the lease or offer you have been asked to sign, and a short note of what you want the business to look like in a few years. Our first-meeting guide has a checklist for business matters.
General information, not legal advice. This page describes BC law in general terms and does not address your particular circumstances. Please contact us to discuss your situation.