Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only. If you need legal advice with respect to incorporating (e.g. registering articles of incorporation, drafting by-laws, director / shareholder resolutions, registries), you should seek professional assistance (e.g. make a post on Dynamic Lawyers). We have Toronto, Ottawa, Hamilton, Brampton, Mississauga and other Ontario lawyers registered to help you. You can also contact me directly (I am a Toronto business lawyer).

Since I’m doing a series of blogs about shares, their rights, privileges, duties, etc., I thought it would be worthwhile to take a step back and talk about shares generally with respect to Ontario and Federal Corporations.

Shares Generally
We start off with the idea that corporations are separate legal entities from their owners and managers.  They are persons created by statute.  Now, whoever owns these things called “shares”, end up owning some or all of the company.  The company issues (gives) shares to others in exchange for receiving money, property, or past services provided.  Now, if a company has shares, the Ontario Business Corporations Act assumes that those shares are EQUAL in all respects:.  This means they all get the right to vote at shareholder meetings and receive corporate property on dissolution.

Class
That said, you can have different CLASSES OF SHARES and SERIES OF SHARES WITHIN THOSE CLASSES with UNEQUAL RIGHTS when it comes to voting, dividends, and entitlements to corporate property on dissolution.  Yes, there must be at least ONE class of shares with the right to vote and receive property.   But, besides that, you can get creative.

So what is a “CLASS OF SHARE” and what is a “SERIES OF A CLASS OF SHARES”?  Well, each and every share in a corporation must belong to a CLASS of shares.  This can be, for example, Class A shares, Class B shares, etc.  A specific share cannot belong to more than one Class of shares.  The Class of shares is identified by certain characteristics – such as the rights, conditions, restrictions, etc.  Now, when you sub-divide the class of shares, you’re creating a “SERIES”.  A SERIES may have specific rights, privileges, and duties attached to them.  More specifically, a SERIES (e.g. SERIES 1) may have certain privileges over another SERIES within the same class.  Get it?

Keep in mind that the articles of incorporation must state what the different rights, privileges, and terms of the shares (classes and series) are. The directors cannot do this unilaterally after the corporation exists. They will need to amend the articles with the shareholders’ consent. So make sure you get it right from the beginning or things may get sticky (particularly if some shareholders don’t agree on creating new share classes or series!).

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Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only.  If you need legal advice with respect to setting up a dental, health, or legal professional corporation, you should seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Toronto, Ottawa, Hamilton, Mississauga, Brampton, and other Ontario business lawyers registered on the website who can answer your questions or help you with your professional corporation.  I should know – I’m one of them and you can contact me directly (michael@carabashlaw.com).

So you are a dentist and you want to have a professional corporation for tax purposes.  Here’s the general process:

1. Under the Regulated Health Professions Act, 1991, no corporation shall hold itself out as a health profession corporation unless it holds a valid certificate of authorization: s. 34.1(1).
2. Schedule 2 of that Act discusses Health Profession Corporations (ss. 85.8 through to 85.14).
3. Subject to the regulations made the Act and the by-laws, one or more members of the same health profession may establish a health profession corporation for the purposes of practising their health profession: s. 85.8(1).
4. The Certificates of Authorization (Ontario Regulation 39/02) are made under the Act.
5. You will need to have a corporation BEFORE you can have a health profession corporation.  In other words, a health profession corporation is simply a corporation holding a certificate of authorization. So the corporation will need to be registered under the Canada Business Corporations Act or the Ontario Business Corporations Act.  To register a corporation, you should have a lawyer prepare the articles of incorporation, the by-laws, director and shareholder resolution and meeting minutes, director and shareholder registry, etc.  A lawyer may also be needed to  create a special class of shares for certain family members (for income-splitting purposes).
6. If you would like a lawyer to fill out the Certificate of Authorization, lawyers would charge extra for their time and it would also cost $750 in fees to the Royal College of Dental Surgeons of Ontario.
7. Depending on the name you choose for your professional corporation, the normal time frame to incorporate is between 1-3 business days.  If there are issues with the name you’ve selected, it could take longer.

FYI, you might want to consider getting a memo from a lawyer on the tax advantages/potential traps of having a dental professional corporation.  There are many things that you should be aware of (e.g. income splitting, loans, attribution rules, etc.).  The way I see it, if you’re going so far as to spend $2,500 to $3,000 incorporating (which includes getting a certificate of authorization), you should spend a bit extra to find out what you can legally do with a corporation with respect to taxes.

written by admin \\ tags: articles of incorporation, business corporations act, business lawyers, canada business corporations act, dental health, health profession, health professions act, ontario business, ontario regulation, professional assistance, professional corporation, regulated health professions, regulated health professions act, shareholder resolution, valid certificate

Please keep in mind that this is not legal advice.  The information provided herein is for educational purposes only. If you would like to get in touch with a lawyer to help you draft, interpret, negotiate or resolve a dispute about a shareholder agreement or unanimous shareholder agreement, then you are encouraged to seek a professional (e.g. make a post on Dynamic Lawyers).  We have Ontario lawyers who can assist you in this regard (I would know, I’m one of them!).  If you want to get in touch with me directly, feel free to email me at michael@dynamiclawyers.com to discuss all your shareholder agreements needs!

This is the second blog I’ll be making about unanimous shareholder agreements.  Specifically, I’ll be discussing a basic template and things you should consider/pay attention to when thinking about unanimous shareholder agreements.  For the purpose of this blog post, I’ll be discussing unanimous shareholder agreements in the context of the Canada Business Corporations Act.

Parties
Make sure to properly identify the parties.   You should have the correct spelling of the parties’ names.  Also, identifying features such as “X is a corporation incorporated under the laws of Canada with a mailing address at” is also good.  If you have too many parties, you may want to use a Schedule, where all of the parties for example are holders of a particular class of shares, etc.

Recitals
Here, you’ll want to put some basic information about the corporation, the parties, and the reason for their entering into a unanimous shareholder agreement.   It’s pretty common to see something in this section like:

• The authorized capital of the Corporation is X;
• The issued and outstanding shares of the Corporation is X;
• The parties want to enter into this agreement to fix and determine their respective rights, duties, obligations, etc. with respect to each other and the Corporation.

Preliminary Matters
In the first real section of the unanimous shareholder agreement, you’ll probably want the parties to confirm the truth and completeness of the recitals and define terms used throughout the Agreement.

Business of the Corporation
In this section, you may want to define the business of the corporation.  This will come in handy with respect to non-compete provisions and agreements which restrict parties’ ability to compete with the Corporation in the business (however that is defined).

Operation and Control of the Corporation
Here, it’s typical to find provisions that say that the discretion and powers of the directors to manage and supervise the management of the corporation are being restricted and usurped by the Shareholders.  Essentially, the Shareholders are relieving the Directors of their powers.

The provisions in this section go on to provide details – often akin to the Corporation’s by laws – on how the Shareholders as both the Directors and the Shareholders will conduct meetings (e.g. nominees, notice, quorum, casting votes, elections and appointments, passing resolutions, etc.).

The provisions in this section may also include specific requirements for the Corporation to enter into contracts (e.g. X number of Directors required) or for the Corporation to do things with respect to issuing shares, borrowing money, selling or leasing Corporate property, amending the Corporation’s articles, continuing the Corporation in another jurisdiction, winding up or dissolving the Corporation, etc.  These things may require special majorities (i.e. majorities which are not specified anywhere in the Act).

You’ll also find provisions in this section of the unanimous shareholder agreement dealing with things like who the officers of the Corporation will be, keeping proper books of account, appointing a banker, etc.

Restrictions on the Issue and Transfer of Shares
This is a very important part of any shareholder agreement: restrictions on share transfers.  There are many ways to restrict transfers on shares, some of which include:

• General prohibition against the Corporation and the Directors for issuing new shares.
• General prohibition against existing shareholders from transferring, selling, assigning, etc. their existing shares.
• A requirement that any party that does, through one of the permissible ways of acquiring shares, acquire shares becomes bound to and a party of the unanimous shareholder agreement.

Here are some of the ways in which share transfers are permitted/restricted:

• Consent Sale: a shareholder can transfer their shares after obtaining the consent of a pre-determined number or percentage of other shareholders.
• Right of First Refusal: a shareholder who receives an offer from a third party for the purchase of their shares must first offer the other existing shareholders the opportunity to purchase those same shares on terms, for example, that are equivalent to the third party’s offer.
• Shot Gun Buy-Sell: a shareholder can name a price at which it is willing to either buy or sell its shares.  The offer is then presented to other shareholders who have a specific amount of time to decide whether to accept the offer.
• Right to Come Along (Piggy-Back): when a shareholder who sells to a third party, the other shareholders are entitled to have their shares sold on, for example, the same terms to that third party.
• Right to Take Along (Drag Along): when a shareholder sells to a third party, the other shareholders are forced to have their shares sold on, for example, the same terms, to that third party.
• Option to Purchase (Call Option): this right gives a shareholder/Corporation the option to purchase shares in certain circumstances (these are called Triggering Events) from the Corporation/shareholder.
• Option to Sell (Put Option): this right gives a shareholder/Corporation the option to sell shares in certain circumstances from the Corporation/shareholder.
• Auction: an auction is a mechanism whereby shares are sold to the highest bidder (or on certain terms of the auction) to third parties.

In each of these circumstances, there are a few common variables: timing or an event occurring, valuing the shares, and rights/obligations affecting the other shareholders, closing provisions, identification of the buyer/seller/third parties (if any), etc.

Confidentiality
If a Shareholder receives Confidential Information (which should be a defined term) in the course of being a Shareholder, Director, Officer, employee, etc. then they should be restricted in what they can do with that information.  I’ve previously blogged about confidentiality agreements, so you can refer to that blog for more information about drafting, understanding and negotiating confidentiality agreements here.

Proprietary Rights
This section will deal with things like defining intellectual property rights (remember that there should be a definition for both proprietary rights and developed proprietary rights), who they belong to, the waiving of any moral rights under the Canada Copyright Act, and an agreement to obtain protection of intellectual property rights.

Non Competition
This section will deal with the repercussions, if any, of a Shareholder who starts competing with the corporation in the Business (which should be a defined term).  To make these provisions enforceable, they should be specific enough (e.g. by identifying parties, the Business, a time line, etc.).

Termination
Here, provisions may be put in place to initiate termination of the agreement where:

• There is only 1 shareholder left.
• A shareholder dies, becomes disabled, or goes bankrupt, etc.
• There is a breach of the shareholder agreement.
• A specific number or percentage of shareholders mutually agree to terminate the agreement.

General Terms
Here, you’ll find terms dealing with things like (but not limited to):

• Notice (how do the parties give notice under the agreement for things like termination).
• Arbitration.
• Assignment (e.g. is this to be done by the parties having to consent in writing?).
• Survival of terms (i.e. if a term is found by a court to be void, should the rest of the agreement survive?).
• Governing Law (which jurisdiction governs the interpretation and enforcement of the agreement?).
• Amendment (how is this to be done?).
• Entire Agreement (i.e. this agreement supersedes all other agreements – whether oral or written – relating to the same subject matters in the agreement)
• Waiver.
• Interpretation.
• Independent Legal Advice
• Currency.

Please keep in mind that there are many other kinds of terms and conditions you can find in the general terms section of this agreement.  You should consult with a lawyer to address these general terms.

Execution
The final section of the agreement (other than any schedules or exhibits) requires that the parties, or duly authorized representatives of the parties with the power to bind, execute the agreement.  It is sometimes a requirement that witnesses be present and sign their names alongside the parties’.

In conclusion, this blog has discussed a basic unanimous shareholder agreement template.  You should note, however, that the particular details of a unanimous shareholder agreement vary depending on the needs of the shareholders and the business.  These documents should be put together by lawyers (such as myself) who are trained, knowledgeable, and experienced professionals.

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Please keep in mind that this is not legal advice.  The information provided herein is for educational purposes only.  If you believe you require assistance in deciding which business structure is best for you, then you are encouraged to seek a professional (e.g. make a post on Dynamic Lawyers).

In this blog, I’ll be discussing professional corporations.

Some of the biggest advantages to operating a law firm through a professional corporation include:

• Tax benefits and tax deferral through the small business credit and the lifetime capital gains exemption to qualifying small businesses;
• The ability to raise capital through a security issuance (e.g. equity or debt);
• The prestige factor that goes along with having a “Professional Corporation”; and
• A lawyer can choose his or her salary and dividend mix in order to minimize tax exposure.

The disadvantages to operating a law firm through a professional corporation include:

• Unlimited liability for the corporate shareholders;
• Inability to engage in income splitting via share ownership;
• Relatively high start-up costs and ongoing maintenance costs (e.g. accounting, meetings and minutes, payroll, and taxes); and
• Creating and maintaining a separate bank account, letterhead, business and tax numbers, etc.

Definition
Ontario’s Business Corporations Act “["BCA"]and the Law Society of Upper Canada’s By-Law #7 govern professional corporations. In the legal context, a professional corporation is a corporation whose shareholders (s. 3.2(1)(1) of the BCA), officers and directors (s. 3.2(2)(2) of the BCA), and managers (s. 32 of By-Law #7) are licensed members of the Law Society of Upper Canada.

Ease of Creation
By and far, a professional corporation is the most onerous – in terms of cost, time, and effort – to create. Ontario’s Business Names Act provides that “[n]o corporation shall carry on business or identify itself to the public under a name other than its corporate name unless the name is registered by that corporation”(s. 2(1) of the Business Names Act).

A professional corporation must first be incorporated in Ontario. Furthermore, lawyers may not practice law through a professional corporation until they have received their Certificate of Authorization from the Law Society – which entails completing an application form and paying an additional fee.

Continuity
Among other things, so long as the directors/officers of the corporation file the company’s annual return and the company is not cancelled for failing to comply with tax requirements, the company will survive the death or bankruptcy of its shareholders and managers and its shares may be perpetually transferred.

Liability
Section 3.4(1) of the Business Corporations Act provides that the professional liability of a shareholder of a professional corporation is unlimited under an Act governing the profession for acts of the shareholders or acts of employees or agents of the corporation. Importantly, this means that, unlike with typical corporations, shareholders of professional corporations are not immune from unlimited personal liability.

Security Interests

Only individuals who are licensed by the Law Society of Upper Canada to provide legal services to the public pursuant to a Certificate of Authorization can be shareholders of a professional corporation (Business Names Act, s. 3.2(2)1). As a separate legal entity, a professional corporation is capable of owning security interests in other business entities and properties.

Taxation
A professional corporation may have the best or worst tax treatment of all the business organizations examined (depending on whether net income is reduced down to zero via labour/employment expenses). On the one hand, if the shareholder lawyers are making more money than they need to be comfortable, then they might consider incorporating and paying themselves a salary less than what the corporation earns so as to defer taxes. On the other hand, the corporation is the only form of business organization whose income is double taxed: the professional corporation’s income is taxed and then whatever retained earnings are distributed to the shareholders are taxed again. As discussing the taxation of corporations is long and complicated, I won’t be getting into it here.

If you have comments, questions or concerns about taxation or other issues involving professional corporations,you’re encouraged to go to Dynamic Lawyers and make a post to get free information and quotes from local lawyers.

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