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 joint venture, then you are encouraged to seek a professional (e.g. make a post on Dynamic Lawyers).  We have Toronto and Ottawa lawyers who can assist you in this regard (I would know, I’m one of them!).

So this blog will deal with the basics of a joint venture agreement or contract.  In other blogs, I’ll get down to the nitty gritty.

Definition
Plaint and simple, a joint venture is a contract between two or more parties to share resources, knowledge, skills, etc. towards a common objective.

Parties
As usual in these types of agreements, the parties are identified at the get-go (make sure this is done properly or else your contract won’t be worth the paper it’s written on!).

Recitals
This is the background story you want to tell that leads up to the formation of the joint venture.  It could go something like: Party X does Y and has Z.  Party A does B and has C.  The two would now like to join forces to make even more $$$.  So they’re agreeing to have a joint venture in accordance with the terms and conditions set out in the joint venture agreement or contract…

Definitions
It’s a good idea to set out the definitions you’re going to be relying upon near the top of the joint venture agreement (for ease of reference and good organization).  You could include definitions here about “Confidential Information” (assuming there will be confidential information passed between the parties as a result of the joint venture), what constitutes “Force Majeure” (e.g. act of God that relieves a party of liability under the agreement in certain circumstances), etc.

Business Structure
The joint venture agreement or contract will generally state how the joint venture is structured.  Is it simply two separate entities acting in concert through the joint venture agreement or contract?  Will there be a new corporation formed?  Will there be a partnership formed?  Will that partnership be a general or limited liability partnership?  For more discussion about the general forms of business one can structure in Ontario, check out this free information about business structures we’ve been accumulating.

Nature of the Relationship
So will the joint venturers be partners (capable of binding each other), corporate shareholders, or simply joint venturers (i.e. their rights and obligations are limited to the terms of the joint venture agreement or contract).

Term and Termination
How long will the joint venture last for and what events give rise to its premature termination?  Will the parties simply be able to give each other notice?  Will the joint venture dissolve by operation of law, by one party filing for bankruptcy, by one party attempting to illegally assign their interest in the joint venture to a third party, etc.?  Again, you should consult with a lawyer to find out what kinds of things typically go in this section.  Also important is what to do in the even of default.  Does one of the joint venturers become liable to pay the other if they are at fault?  Who determines fault and according to what test (e.g. sole and absolute discretion)?  There’s a lot to think about here…

Joint Venture Assets and Benefits
How will these things be deal with?  Will there be a percentage of ownership?  Will the benefits be based on revenues or profits?  Can these interests be assigned?

Operations
How will the joint venture be operated on a day-to-day basis?  Will the joint venture committee have the power to enter contracts on behalf of the joint venture?  Perhaps the joint venture committee will create a new corporation to take on a certain responsibilities and simply own equally the shares of the new corporation.  That new corporation would operate as a separate business, but its shareholders would be the joint venturers (who would elect the directors, who in turn would appoint the day-to-day officers).  This would be a good place to put reporting and record-keeping requirements too.

Joint Venture Responsibilities
Here, we get to the nitty gritty of who will be responsible for what in the joint venture. Separate paragraphs will be needed for each of the parties.

Joint Venture Management
Will there be a committee?  Will representatives from each of the parties be on the commitee?  Will there be a chairperson?  How will meetings be managed, votes and decision made?  Will there be direction from owners and delegation to the committee?  In my opinion, and as I’ve previously blogged about, businesses should be run as dictatorships with consultants, not as democracies (too many voices means things won’t get done).  

Representations and Warranties
What kinds of true, fair, and complete statements must the parties make to induce the other parties to enter the agreement?  The parties want to know that their joint venturer partners have the authorization and operational wherewithall to do what it is they are about to do.  If these representations and warranties no longer hold true, then what’s the consequence?  Notice?  Termination?  This should be spelled out here…

Liability and Indemnification
Will the joint venturers try to limit their liability from each other in connection with the joint venture?  Will they indemnify each other for their own wrongdoing – whether in contract, tort, negligence, misconduct, breach of statute or otherwise?

General Terms and Conditions
This section of the Joint Venture Agreement will deal with things like (which I’ve previously touched on in teh context of an independent contractor agreement):

• Notices
• Entire Agreement
• Governing Law
• Interpretation
• Assignment
• Waiver
• Cumulative Remedies
• Counterparts
• Enurement
• Entire Agreement
• Time of Essence
• Independent Legal Advice
• Force Majeure
• Severability
• Survival
• Currency

written by admin \\ tags: agreement, assets, bankruptcies, bankruptcy, blog, breach, business, circumstances, confidentiality, contracts, corporation, indemnification, lawyer, lawyers, liabilities, negligence, negotiating, Negotiations, partnership, percentages, relationships, separation, shareholder, shareholders, shareholdings, toronto

My final blog in anticipation of being on Goldhawk Live tomorrow at 7:00 p.m. deals with the question: do I really need a lawyer?  The answer, in my humble opinion, is not so straightforward.  In some cases, a lawyer would be highly recommended (e.g. you get charged for a serious crime or sued for lots of money or child custody is at stake) whereas in other situations, the tools may be readily available to do without their services.  Let’s look at one example of incorporating which I will use to drive home the “it depends” message.

Incorporation
There are enough service providers and information out there to help you incorporate a business yourself without a lawyer.  Just do some research on articles of incorporation, by-laws, annual returns, shareholders/directors/officers, meeting minutes, corporate taxes, etc. and you too will know how to incorporate and maintain a business.  In fact, just check out this blog and you’ll find a lot of what you need to know about each of these topics.  Here is a great government website from Corporations Canada that has 60 pages worth of valuable information on how to incorporate a business federally.

But what if you need specific by-laws concerning director liability and insurance (which you can’t find in some boilerplate precedent)?  What if you need a special class of shares for a certain group of shareholders with specific rights attached?  What if you need a shareholders’ agreement with share transfer restrictions built in place?  What if you need help getting the money out of your corporation while paying the least amount of taxes?  What if you want to expand your business and are wondering which legal vehicle (e.g. division, subsidiary, franchise, etc.) is ideal? …  You see where I’m getting at?  You will undoubtedly have questions about your corporation and where it is heading and a lawyer MAY BE NEEDED to get answers to your particular situation.  In fact, if you went ahead and incorporated without consulting with a lawyer, but then need to amend your articles of incorporation after consulting with a lawyer, you will need to pay a few hundred dollars more in government fees to do so!  So you could have saved time and money by consulting with a lawyer first.

written by admin \\ tags: articles of incorporation, articles of incorporation by laws, boilerplate, corporate taxes, corporations canada, director liability, government website, how to incorporate a business, lawyer, liabilities, share transfer, shareholder, shareholders agreement, shareholdings, transfer restrictions

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 creating a limited liability company or amending a corporation’s articles of incorporation, you should seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Toronto and Ottawa business lawyers registered on the website who can answer your questions or help you with your  Ontario or Federal corporations.

Sure, you’ve heard it before: corporations typically have Class A shares (or common voting shares) and Class B shares (or preferred non-voting shares).  But have you heard of Class C shares which are designed specifically for income-splitting?  The reality is that, so long as you have one type of common voting share, you can be quite innovative with the characteristics you assign to other classes of shares.

So lets get into nitty gritty of what I mean byClass C “income-splitting” shares.  Basically, these are a class of shares that are subservient to Class A and Class B shares in virtually all regards. Specifically, you can design Class C shares such that they:

• have no voting rights;
• have no voting rights or right to dissent with respect to issues revolving around shares, classes of shares, cancellation of shares, issuance of shares, etc.;
• have a right to receive a non-cumulative dividend (as determined and declared by the board of directors from time to time);
• be redeemable by the corporation for a pre-determined price (e.g. $1.00);
• be redeemable by the corporation upon liquidation, dissolution, or winding up for a pre-determined price (e.g. $1.00 each);
• be denied entitlement to any additional profit above and beyond what was declared by the board (which would go to Class A and/or Class B shareholders)

So what’s the purpose of having such a subservient class of shares subect to the rights and entitlements of Class A and Class B shares?  Simple: keep corporate control out of these shareholders’ hands while giving them compensation in the form of dividends from time to time .  These class of shares can be redeemed (which means cancelled) for a pre-determined “redemption amount”.  Overall, this class of share seems good for a silent investor who is comfortable with not getting involved in the long-term or day-to-day decision making that is undertaken by the Class A voting shareholders, the board of directors, and the executive team (i.e. the President, Vice-President, Secretary, Treasurer, etc.).  The difficulty with these class of shares may be in trying to value them (i.e. getting to a “redemption amount”).  This will be negotiated by the corporation (through its directors/officers) and the potential shareholders.  Typically, valuing shares is based on the future earning potential of the corporation discounted to today and then divided among the shares.  When you add up all the future expected dividends of a particular class of shares, you’ll end up with something that resembles the future price of the share today.  It’s more of an art than a science to value shares.  Getting a professional valuator, accountant, or lawyer involved could help get to a fair market value.  At the end of the day, the value of a Class C preference income-splitting shares will be whatever the potential shareholder and the corporation are willing to agree upon (which depends on a number of real life circumstances).

written by admin \\ tags: articles of incorporation, business incorporation, business lawyers, class a shares, class b shares, common voting shares, corporation, cumulative dividend, income-splitting shares, incorporation, lawyer, lawyers, limited liability company, preferred non-voting shares, shareholder, shareholders, shareholdings

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 drafting articles of incorporation, corporate by-laws, shareholder agreements, or resolutions involving shares, you should seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Toronto and Ottawa business lawyers registered on the website who can answer your questions and assist you in those regards.

What are shares?  What kinds of characteristics do they have?  How are they valued?  Well, in this blog, I’ll be addressing these issues in the context of a federal corporation governed by the Canada Business Corporations Act.

Lets begin with the basics.

Incorporated businesses are owned by persons (which include individuals, sole proprietorships, partnerships, trusts, joint ventures, not-for profit corporations, and other corporations) through shares.  Each corporation, through its articles of incorporation, can designate different classes of shares (i.e. shares with different characteristics).  At a minimum, section 24(3) the Act requires that a corporation have at least one class of shares.  That class of shares are called voting shares because they allow the holders to vote at any shareholder meetings.  They also allow the shareholders to receive dividends as declared from time to time and in the discretion of the board of directors (recall that the shareholders vote in the board of directors through an election).  Finally, the voting shares give their holders the right to receive the remaining property of the corporation on dissolution.   Remember that creditors (secured and unsecured) are entitled to be repaid before shareholders upon dissolution.

If the articles of incorporation provide for more than one class of share, then things can get interesting.  For example, a corporation can have 3 classes of shares (call them Class A, B, and C), all of which carry different rights with respect to voting (voting vs. non-voting), dividends (variable vs. fixed), and priority upon dissolution.  For example, Class C shares may be non-voting, having a right to regular dividends, and have priority over Class A shares.  This puts the Class A shareholders at risk of not getting anything if the corporation goes into dissolution – particularly if there isn’t enough assets to pay out creditors and priority shareholders.

Whenever shares are issued (i.e. sold/transferred to a shareholder in exchange for money, property, or past services rendered – see s. 25(3)), their value fluctuates depending on (1) the value of the company and (2) the total number of issued and outstanding shares.  With respect to the latter, if the corporation continues issuing more shares to different parties, then the original shareholders’ shares will be diluted in value.  In privately-held companies, valuing the shares is much more difficult.  Sometimes, shareholders value the shares as a multiple of something (e.g. book value) instead of potential earnings discounted to today. The value of the shares is typically pre-determined according to some formula set out in a Shareholders Agreement.  If a Shareholder Agreement doesn’t exist, the parties can seek help through a lawyer, consultant, business valuator, accountant, etc.  At the end of the day, the fair market value of the shares is typically described as the price that two arms length individuals would be willing to buy/sell the shares if they didn’t have to (i.e. if they weren’t forced to).

Finally worth mentioning is that the ability to transfer shares may be restricted in the Articles of Incorporation or a Shareholders Agreement.  Such restrictions are worthy of another blog entry entirely.  Furthermore, private corporations (unlike public ones) are restricted in terms of the number of shares they can have issued and outstanding.  Specifically, private corporations can only have 50 different shareholders or less.

written by admin \\ tags: articles of incorporation, business, business incorporation, business lawyers, canada business corporations act, incorporators, lawyer, lawyers, shareholder, shareholder agreements, shareholder meetings, shareholders, shareholders vote, shareholdings, toronto

There are over 17,000 individuals in Toronto who can call themselves a Toronto attorney.  Each Toronto attorney typically has his or her own specialty.  The day of the general practitioner is not as it once was (and is slowly fading away).  In fact, specialization is a preferred strategy to earn above-average returns in any given industry.  Besides, think of how hard it would be for a lawyer who ‘does it all’ to keep up to date with the changing laws in every given legal area.  It’s way too difficult and that’s where negligence cases may arise.

In any event, I thought I’d spend some time discussing the various types of Toronto attorneys that you can come across on a day-to-day basis.  Here’s the first breakdown of types of Toronto attorneys (please keep in mind that this list of the types of lawyers out there is not exhaustive):

• Toronto Real Estate Attorneys: help you buy and sell residential, investment, farm, cottage, recreational, condominium, and cooperative properties.  They also you get a mortgage financing and refinancing as well.

• Toronto Personal Injury Attorneys: help you litigate, settle, or otherwise resolve claims arising from:
  • accident benefits claims
  • dog bites
  • disability claims
  • medical malpractice
  • motor vehicle accidents
  • negligence actions
  • personal injury claims
  • product liability
  • slip and falls

• Toronto Business Attorneys: help you to incorporate and organize, merge/amalgamate, and dissolve your business.  They can help prepare, review, interpret, revise, negotiate, litigate, and resolve the following business documents:
  • shareholder agreement
  • partnership agreement
  • joint venture agreement
  • franchise agreement
  • commercial leases
  • business acquisitions
  • regulatory compliance
  • constructions contracts
  • employment agreements

• Toronto Wills and Estates Attorneys: they offer services from a basic will and powers of attorney  to more complicated tax-planning structures, such as inter-vivos trusts and estates freezes.  They can also help personal representatives in the administration and distribution of estate assets.  Finally, they can litigate on behalf of beneficiaries or the estate trustee on issues such as mental capacity of the testator, validity of a will, etc.

• Toronto Family Attorneys: they can help you with your marriage breakup by drafting a separation agreement.  They can also help you with issues such as divorce, spousal and child support, child custody, possession of the matrimonial home, and the equalization of net family property.
  

• Toronto Criminal Defense Attorneys: they can help represent you against government bodies that have charged you with criminal or provincial offences (e.g. careless driving), including:
  • DUI (driving under the influence)
  • assault
  • sexual assault
  • fraud
  • theft

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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 drafting, reviewing, interpreting or resolving disputes concerning shareholder agreement, you should seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Toronto business lawyers registered on the website who can answer your questions or help you with your shareholders agreement.

A shareholders agreement is an agreement between the shareholders (and which may even include the corporation as a party) to fix and determine between themselves certain of their respective interests, obligations, liabilities and ownership in the corporation and to record their agreement as to the manner in which certain of the affairs of the corporation shall be conducted.

Typically, a shareholders agreement will deal with things related to shareholders voting or transferring their shares.  The following provisions are common to restrict or otherwise control how shares can be transferred:

1. Restrictions on Share Transfers (generally): These provisions provide that no sale, transfer, assignment, disposition or issue of shares of the corporation at any time to any person is valid and binding unless it is done through one or more of the share transfer provisions of the shareholders agreement.
2. Consent Sale: The simplest exit mechanism is to allow a party to transfer its units/shares after obtaining the consent of the remaining limited partners/shareholders. This allows remaining shareholders to maintain control over whom they deal with.
3. Auctions: This allows a shareholder to sell their respective shareholdings to the highest bidder.
4. Right of First Refusal: A right of first refusal is a right which existing shareholders have to purchase the shares before non-shareholders can purchase them The issue (and disputes) often comes down to how to value the shares.  Typically, share values in these circumstances can be valued ahead of time based on a schedule (that should be updated periodically), by third parties (e.g. independent valuators and auditors), based on fair market value (i.e. what would an outside party pay for the shares if that party did not need to purchase the shares and if the party transferring the shares did not need to transfer them – i.e. it’s determined by demand and supply), or some pre-determined formula (e.g. a multiple of book value of the shares).
5. “Shot-gun” Buy-Sell: This clause allows one party to state a price at which it is willing to either buy or sell shares. The offer is then presented to the other party, who is given a specified amount of time to decide whether to accept the offer to purchase, or to decline the offer and sell at the stated price.
6. Right to Come Along (“Piggy-Back”): If one shareholder sells to a third party, then the remaining shareholders are entitled to have their shares sold on the same terms to that third party.
7. Right to Take Along (“Draw Along Right”): This right allows a third party to purchase shares of an unwilling shareholder if a certain number of shareholders agree to sell or transfer their shares to that third party.  This clause is then triggered, thereby forcing the remaining shareholders to be drawn along and have to sell their shares.

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