CORPORATE AND COMMERCIAL LAW
If I want to raise money privately to fund my start-up company, without filing a prospectus, are there any legal requirements that I need to know?
Yes. If you intend to do so through the private placement of your company’s securities, while avoiding the cost and effort of filing a prospectus, you need to ensure that the issuance of such securities qualifies under the exemptions to the prospectus filing requirements of the Securities Act (Ontario).
Some common exemptions include the “private issuer” exemption, which permits trades of securities of companies whose outstanding securities are beneficially owned by not more than 50 holders (subject to some exceptions) of defined categories and whose shares are subject to certain transfer restrictions. Other common exemptions include trades to “family, friends and business associates” and issuances to “accredited investors,” a category that includes companies with high net assets and individuals with high net worth.
The availability of the various exemptions will depend on the nature of the proposed trade and the identity of the prospective purchaser(s). Those should be discussed prior to issuances with one of our corporate lawyers, who can identify and analyze the appropriateness of available options.
Why do I need a shareholders’ agreement?
It is advisable to have a properly drafted shareholders’ agreement to provide for the governance of the corporation and the relationship between the shareholders, and ultimately to provide for a “divorce” mechanism if one shareholder wishes to end the relationship. If there is no shareholders’ agreement and the parties involved are unable to come to an arrangement, the only alternative may be a court proceeding with its attendant uncertainty, cost, and distraction.
Other matters commonly dealt with in a shareholders’ agreement include providing for the situation in which one shareholder wishes to sell the business to a third party and another shareholder does not, the death or disability of a shareholder, veto rights in favour of a significant minority shareholder relating to fundamental matters, the ability to transfer an individual’s shares to a family trust or holding company without the approval of the other shareholder(s), and an agreement by a selling shareholder not to compete with the company.
It is generally advisable to have a shareholders’ agreement, whether it is comprehensive or simply covers the basics. Brazeau Seller Law can assist you in designing the type of agreement that best suits your needs.
Is it true that non-competition agreements are “not worth the paper they are written on”?
Sometimes yes, and sometimes no. The courts are more inclined to uphold a non-competition agreement that is carefully and properly drafted, particularly when made in conjunction with the sale of a business; however, problems can arise, given that such agreements are, by nature, a restraint of trade. They are, therefore, scrutinized by the courts to ensure that they are no more widely drafted than is necessary to protect the legitimate business interests of employers or business purchasers. For that and other reasons, this is an area of law that requires a keen understanding of both the legal and the business considerations involved.
In this age of globalization, how does a local firm such as yours handle national and international transactions?
We have lawyers who have been involved with national and international mergers and acquisitions and public offerings since the early 1980s, and we have a great deal of experience servicing the day-to-day needs of public and private companies of various sizes. In addition, as the exclusive Ottawa member of the Meritas worldwide affiliation of business law firms, we have immediate and direct access to the services of pre-qualified affiliated business law firms throughout Canada, the United States, and in more than 70 other countries worldwide.
What are an employer’s obligations to an employee whose employment is to be terminated without cause?
The answer to this question presumes that there is no agreement between the employer and employee dealing with the matter, and that there is no cause recognized by the law that would permit the employer to terminate the employment without notice.
Under applicable statutory law, an employer is required to give an employee a specified notice of termination, or pay in lieu that is based on the duration of his or her employment. In addition to such statutory notice or termination pay, the employer may be required by law to provide severance pay. Whether this obligation will arise depends upon various factors, such as the length of the individual’s service, the size of the employer’s payroll, and, in the case of mass layoffs, the number of employees affected.
An employer is also required under common law to give an employee “reasonable notice” of termination, or pay in lieu. The definition of reasonable notice varies according to such factors as the employee’s age, type of position occupied (e.g., management or clerical, blue collar or professional), the employee’s length of service with the employer, the degree of difficulty that the employee will have in obtaining comparable employment after the termination, whether the employee was originally enticed from a position elsewhere, and the way the employment was terminated. What is reasonable depends on the facts of each case and can only be answered with the benefit of legal advice. Brazeau Seller Law has substantial experience in this area of the law, both from an employer and an employee perspective.
Should an employer and an employee have a written employment contract?
An employment contract exists from the time an individual accepts an offer to work for an employer. Rights and obligations ensue, regardless of whether anything is in writing.
A written employment contract is desirable, given that it affords an opportunity to clearly describe matters that are of importance to both parties (such as the employee’s duties, compensation, vacation entitlement, etc.). When a written contract defines a benefit to one party, for example, it makes it very difficult for the other party to argue later that the matter was never agreed upon. This is true for employment contracts as much as it is for any other type of agreement.
From an employer’s point of view, a properly drafted employment contract that clearly articulates the applicable notice period in the case of termination by the employer will significantly reduce exposure to a potential lawsuit by the employee. From an employee’s perspective, a written agreement might contain a “golden parachute” provision, whereby certain benefits accrue if the employer is taken over by another company.
Does an employer have the right to suspend an employee for misconduct?
An employer in a non-unionized workplace has no right to suspend an employee for misconduct, except to the extent that it has reserved for itself the right to do so by agreement with the employee, or through policy communicated to employees generally and enforced in an even-handed manner.
Many non-unionized workplaces do have policies that set out an employer’s right to discipline by way of suspension, written reprimands, or other measures, to respond to an employee’s improper conduct without having to resort to termination.
In the case of a unionized workplace, virtually all collective agreements contain or contemplate progressive discipline provisions. Those agreements often detail the nature of offences that merit discipline and contain limits on the ways an employer can discipline an employee. For example, discipline must be initiated within a certain amount of time from when the conduct occurred. Some collective agreements even prescribe the minimum or maximum disciplinary penalties that will apply to certain workplace offences.
Following termination of employment, does an employee have any obligations to his or her former employer?
The obligations owed by an ex-employee to his or her former employer depend on whether the employee signed an agreement containing non-competition or non-solicitation provisions, and the individual’s level of seniority at the time of termination.
A non-competition agreement typically prohibits an employee from competing with the former employer for a defined period within a defined geographic territory. For the agreement to be enforceable, the restrictions cannot exceed those that are reasonably required to protect the legitimate business interests of the employer. A non-solicitation agreement typically prohibits an ex-employee from soliciting or inducing clients or employees of the employer away to another business. Another important restriction commonly found in these agreements bars an ex-employee from using or sharing with others confidential business information relating to product development, research, business methods, or trade secrets of any kind.
What if there is no agreement?
Where an employee occupied a position of trust or a senior position resulting in knowledge of strategic or confidential business information, that individual is not allowed to take advantage of opportunities to the detriment of a former employer.
In cases where no such trust or knowledge existed, an individual does not owe any fiduciary obligations towards a former employer. He or she is free to compete against the former employer and to solicit its customers, provided that no trade secrets or other property of the former employer are used.
Is it advisable to have a written workplace policy regarding sexual harassment?
While an employer is not legally required to have a written policy regarding sexual harassment, it is advisable to have one and to ensure that it is fully implemented and respected. Case law suggests that where a policy is established and adhered to, an employer may avoid liability for acts of sexual harassment by employees, provided they could not reasonably be prevented.
Where an employer implements an effective sexual harassment policy, and promptly and fully investigates claims with the cooperation of the parties involved, complaints can often be dealt with quickly and with a minimum of negative consequences for the parties involved or the company.
Where there is no such policy in place, or when a matter is not addressed properly, the consequences are often much more severe. In these cases, employers can be faced with a situation in which an employee’s continued employment is untenable, given the nature and severity of the sexual harassment that is alleged, and the employer has no choice but to terminate the employee and possibly pay out severance packages, or risk legal action from employees who do not believe that their termination was justified. A complaint may also be made to the Ontario Human Rights Commission.
Can an employer view an employee’s email or listen to an employee’s voicemail without that individual’s knowledge or permission?
Employees who use company email and voicemail for personal purposes often believe or expect that they have a right of privacy with respect to information contained in such messages. Such an expectation may be reasonable where an employer has not advised its employees that voicemail and emails may be monitored. To deal with arguments relating to employees’ expectation of privacy, employers should have written policies to advise that the use of company electronic equipment may be monitored, and that where such use is found not to be business-related or in compliance with employer policies regarding accepted use, discipline may result. Where an employer wishes to rely upon information gathered through monitoring in a termination or disciplinary context, any evidence presented is subject to the usual challenges regarding reliability, the purpose for initiating the monitoring, the use of the information, and so on. The employer’s ability to rely on such evidence is greatly enhanced if a written policy about monitoring or the use of company equipment generally is in place.
In addition, where an employer learns of illegal activities through monitoring voicemail or email, or by examining equipment issued to employees, the awkward question of whether a legal duty to report a matter to the appropriate authorities may arise. For example, disturbing images might be discovered on an employee’s computer. Similar issues of criminal law can surface where images or text contained in email messages or attachments violate child pornography, hate crime, or other legislation.
The best course of action is to establish well-written policies that set out what level of privacy, if any, employees can expect while using company email, voicemail, or other company assets. If assistance is needed, Brazeau Seller Law has extensive experience in this area.
What does the term “intellectual property” encompass?
There are six categories or types of intellectual property: copyright, trademarks, industrial designs, integrated circuit topographies, patents, and trade secrets/proprietary information.
A copyright is the exclusive right to publish, produce, reproduce, translate, communicate, perform, or exhibit a creative work, or the right to permit others to do so. Copyright attaches to original literary, artistic, dramatic, or musical works, and to computer software.
A trademark is a word, symbol, design, or a combination of those, used to distinguish the goods or services of one person from those of others in the marketplace. Slogans, names of products, business names, distinctive packages, and unique product shapes are examples of features that may be trademarked.
An industrial design is any original shape, configuration, pattern, or ornamentation applied to an article and which affects the article’s visual appeal. Examples include the shape of a chair or the decorative features of a china plate.
An integrated circuit topography is a three-dimensional configuration of the electronic circuits embodied in integrated circuit products or layout designs. An integrated circuit is a manufactured device made up of a series of layers of semiconductors, metals, insulators, and other materials.
A patent is the exclusive right, granted to an inventor by the government through a registration process, to exclude others from making, using, or selling a new and useful invention, which may include a product, a composition of materials or chemicals, a process, or an improvement to any of the foregoing.
Trade secrets and proprietary information consist of such things as know-how, customer and supplier lists, ideas, business plans, and other documents, and the many other types of confidential or critical information that a company develops for use in its business.
It is important to understand that one product may involve several types of intellectual property. For example, a semiconductor may contain copyrighted software, an integrated circuit topography, a patented process, and proprietary information. It may even be part of a product line that is trademarked.
Brazeau Seller Law routinely advises clients regarding the characterization of intellectual properties and the various means of protecting them.
How can intellectual property be protected?
Copyright is acquired automatically upon the creation of an original work, and does not need to be registered with the Canadian Intellectual Property Office (CIPO) to be asserted. However, registration does enable the creator to obtain a certificate of ownership that can be used in court, if necessary. It can also be used to prevent a copyright infringer from arguing that they were not aware that the copyright existed.
In most cases, copyright in Canada exists for the life of the author, plus 50 years following the end of the calendar year in which the author’s death occurred. Generally, the owner of copyright is: (a) the creator of the work, (b) the employer of the creator of the work, if the work was created during employment and if there is no agreement to the contrary, (c) the person who commissions a photograph, portrait, engraving, or print for valuable consideration (unless there is an agreement to the contrary), or (d) a person who has acquired ownership of the copyright from a prior owner. Copyrights may be assessed and/or licensed. Although it is not necessary in Canada to mark a work with a copyright notice, it is advisable to do so. The reason: marking is required in some other countries, and so it serves as a universal notice to others that the work is protected.
A trademark must meet certain requirements to be registerable in Canada; however, a trademark does not have to be registered to be valid. Generally, the first person to use a unique trademark will have the exclusive right to it in markets served. Registration provides evidence of exclusive ownership throughout Canada (regardless of whether it is used in all parts of the country) and provides more options for enforcing a holder’s legal rights. Also, the process of registration helps to verify that the trademark is unique and does not conflict with other registered marks. The registration of a trademark is valid for 15 years and is renewable for 15-year periods thereafter. Registration in certain other countries may also offer foreign registrants protection in Canada if the trademark has become sufficiently known in Canada. Trademarks (whether registered or not) may be assigned and/or licensed, but written agreements are strongly advised to protect trademark rights.
An industrial design must be registered to be effective. In the absence of registration, the creator of an industrial design cannot be protected against imitation. Registration provides such protection throughout Canada for a 10-year period. In many cases, an industrial design is also protected by copyright; however, copyright ceases to apply to an industrial design if it is used to produce more than 50 single useful articles or sets of articles.
An integrated circuit topography must be registered to be effective. Registration lasts for a period of up to 10 years. Upon registration, the original design of the topography is protected, independent of whether it has been embodied in a product. The owner of a registered topography can exclude others from reproducing, using, or exploiting it.
A patent must be registered to be effective—and there are stringent criteria that must be met. The owner of a patent has the right to exclude others from making, using, or selling the patented invention in Canada for a term from the day the patent was granted to 20 years after the patent application was made. In exchange for this monopoly, the government will publish the patent application 18 months after it has been filed in Canada or a foreign jurisdiction, thereby permitting others to benefit from the advance in technology and information inherent in the patented invention.
Trade secrets and proprietary information can receive contractual protection. A non-disclosure agreement is one type of contract that enables the owner of trade secrets and other confidential or proprietary information to share that material with others, based on an understanding that it will not be further disseminated or profited from, except as permitted by the terms of the agreement. Organizations often contract with their employees to ensure that sensitive and proprietary information is not shared or accrues to the benefit of the organization only.
The protection of intellectual property rights has never been more important—or more complex. We know, based on years of experience in this area of law. As a member of Meritas, a global network of business law firms, we also have access to affiliated lawyers worldwide who can assist with intellectual property matters in foreign jurisdictions, which are often critical to your success.
I am involved in a commercial dispute. How will you help me decide whether to commence a court action?
We will assess various factors, including the practical merits of your case, the prospects for obtaining suitable relief and the defendant’s ability to comply with a judgment in your favour, and the costs associated with pursuing your claim, and advise you whether pursuing legal action makes sense.
I have heard that the civil court system in Ottawa has been revamped to make it faster and more effective. Is that true?
Innovations in case management and mandatory mediation have indeed improved the court system in Ottawa. That’s good news for all concerned. At Brazeau Seller Law, we understand that your business relies on litigation results—not litigation delays. We employ proactive and practical litigation strategies, such as summary judgment motions and alternative dispute resolution, to achieve the desired result for our clients without the added delays and expense of going to trial.
My company is looking for lawyers who can assist us with collection of our difficult accounts receivable. What does your firm offer in this regard?
Our approach is fundamentally proactive and business-driven. We look to partner with our clients and use creative means to achieve a positive result in the most cost-effective manner. We have successfully recovered millions of dollars for our clients over the years, in many situations, where hope appeared lost.
I am a corporate executive. Sometimes I am required to give distasteful instructions to advance the interests of the company. Can I be held personally liable for orders I give or actions I take on behalf of my company?
In certain circumstances, yes. It had been thought that there was a blanket immunity for corporate executives who act in the company’s best interests, based on the principle that the acts of the executives were really the acts of their company and that only the company should be held liable. However, the “ADGA doctrine,” which originates from a case called ADGA Systems International Ltd. v. Valcom Ltd. and argued by Brazeau Seller Law, has changed the law in this regard.
Our lawyers can advise you regarding acts or instructions that can—or won’t—result in personal liability.
Non-Profit and Charity Law
The following questions and answers are distilled from Registering a Charity for Income Tax Purposes, a publication of the Canada Customs and Revenue Agency, Charities Division.
What are the basic advantages of being a registered charity?
Registration allows an organization to issue official receipts for gifts received. This reduces the individual donor’s income tax payable and reduces the taxable income of a corporate donor. Once the organization is registered, it is exempt from paying income tax (under Part I of the Income Tax Act).
What are the obligations of a registered charity?
Once it is registered, an organization must: (a) devote its resources to charity; (b) continue to meet the other requirements of registration; (c) file a Registered Charity Information Return within six months of the organization’s year-end; and (d) maintain books and records in accordance with certain standards and the Income Tax Act.
Does an organization need to be registered?
An organization may not need to be registered in the following situations: (a) it does not need to be exempt from income tax and it does not anticipate receiving gifts for which it will issue official receipts for income tax purposes, or (b) it is a branch or agent of a Canadian municipality, or is raising funds for a municipal project. Organizations should keep in mind that some provinces and municipalities will only grant certain licences or provide relief from provincial and municipal taxes to organizations that are registered charities under the Income Tax Act. Special provisions are available for registered charities under the goods and services tax rules.
If an organization cannot meet the requirements for becoming a registered charity, it may qualify as a non-profit organization under the Income Tax Act. An organization with non-profit status does not have to pay tax on most types of income, but it cannot issue official receipts for income tax purposes unless it is also registered as a charity.
Are charities subject to other federal and provincial requirements?
The Income Tax Act is not the only law that applies to charities. Charities can also be subject to other federal or provincial legislation that is associated with their operations, such as provincial or municipal standards for a nursing home, hospital, school board, or housing project. At the federal level, registered charities also must meet the requirements of the Goods and Services Tax (GST) or the Harmonized Sales Tax (HST), and may need to register with the Canada Revenue Agency (CRA) for GST/HST purposes. An organization may be able to claim a rebate for a part of the GST and HST it paid or owes on goods and services it purchased for use in its activities. However, an organization is eligible for the rebate only after it is registered as a charity.
If a charity is federally or provincially incorporated, it must meet certain requirements under the incorporating law. These may include the requirement that corporations send returns to the appropriate incorporating authority.
What standards does CRA use to register charities?
To qualify for registration, an organization must be established and operated for charitable purposes, and it must devote its resources to charitable activities. The charity must be resident in Canada, and cannot use its income to benefit its members. A charity also must meet a public benefit test. To qualify under this test, an organization must show that: its activities and purposes provide a tangible benefit to the public; those people who are eligible for benefits are either the public or a significant section of it, in that they are not a restricted group or one where members share a private connection, such as a social club or professional association with specific membership; and the charity’s activities must be legal and must not be contrary to public policy.
What forms of organizations can be registered?
For purposes of registration as a charity, the organization must be either incorporated or governed by a legal document called a trust or a constitution. This document must explain the organization’s purposes and structure. The organization should be structured as a not-for-profit entity with a provision in its governing document requiring that the organization shall be carried on without purpose of gain for its members and that any profits or other assets shall be used solely to promote its objectives.
What are charitable purposes?
The courts have identified four general categories of charitable purposes. For an organization to be registered, its purposes must fall within one or more of the following categories established under common law: the relief of poverty, the advancement of education, the advancement of religion, or certain other purposes that benefit the community in a way the courts have said are charitable. The following are examples of the types of organizations that may qualify as charitable under each of the four categories:
- Organizations established for the relief of poverty include food banks, soup kitchens, and enterprises that supply low-cost rental housing, clothing, furniture, and appliances to the poor.
- An organization established for the advancement of education is charitable if it involves formal training of the mind or formal instruction, if it prepares a person for a career, or if it improves a useful branch of human knowledge. Simply providing information is not accepted by the courts as educational; training or instruction must also be offered. The advancement of education includes: establishing and operating schools, colleges, universities, and other similar institutions, establishing academic chairs and lectureships, providing scholarships, bursaries, and prizes for scholastic achievement, undertaking research in a recognized field of knowledge (with that research carried out for educational purposes and its results made available to the public), advancing science and scientific institutions, including maintaining learned societies (however, professional associations or other societies that primarily provide benefits to members are not considered charitable), and providing and maintaining museums and public art galleries. The courts have ruled that an activity which advances education should involve a full and fair presentation of the facts so people can draw their own conclusions. If an organization intends to influence the opinion or actions of the public toward one side of a controversial issue, it is not advancing education in the charitable sense. For this reason, an advocacy group would not qualify as a charity.
- The advancement of religion refers to promoting the spiritual teachings of a religious body, and maintaining the doctrines and spiritual observances on which those teachings are based. There must be an element of theistic worship, which means the worship of a deity or deities in the spiritual sense. To foster a belief in proper morals or ethics alone is not enough to qualify as a charity under this category. A religious body is considered charitable when its activities serve religious purposes for the public good. The beliefs and practices cannot be what the courts consider subversive or immoral. Other activities that advance religion include: organizing and providing religious instruction, and performing pastoral and missionary work, and establishing and maintaining buildings for worship and other religious use.
- Purposes beneficial to the community include various purposes that do not fall within the other categories, but which the courts have decided are charitable. This is the “public benefit” test. However, not all purposes that benefit the public are charitable. For example, a property owners’ association or community association might not qualify. Organizations that normally qualify as charitable include those with the following purposes: providing immediate relief to victims of natural disasters or sudden catastrophes (e.g., floods, earthquakes, and tornadoes), relieving suffering or disability caused by old age, which includes providing facilities for the care, maintenance, and rehabilitation of the elderly, preventing and relieving sickness and disability, both physical and mental (e.g., services performed by hospitals, clinics, nursing, and convalescent homes, the provision of home care services, and the establishment of workshops or other centres for disabled people), providing rental housing and related facilities for people with special needs (e.g., homes for disabled people), preserving the environment, protecting the welfare of children (e.g., societies for the prevention of child abuse), providing counselling services for people in distress, rehabilitating victims of substance abuse and preventing substance abuse, providing certain public amenities to benefit the community, establishing safety rescue operations or a volunteer fire department, and establishing humane societies, animal shelters, and similar institutions to prevent cruelty to animals.
What factors will disqualify an organization from registration?
The Income Tax Act stipulates that no part of a registered charity’s income can be payable or otherwise available to personally benefit any proprietor, member, shareholder, trustee, or settler of the organization. However, this does not prevent an organization from paying for services rendered, or incurring and paying other expenses that are associated with the normal operation of the charity.
Under common law, political purposes are not charitable and an organization will not qualify for charitable registration if at least one of its purposes is political. In this regard, the courts have decided that organizations seeking to achieve political objects, in whole or in part, cannot be recognized as charities. Examples of purposes of a political nature include: furthering the aims of a political party, promoting a political doctrine, persuading the public to adopt a view on a broad social question, and attempting to bring about or oppose changes in the law or government policy. As well, purposes that are so broad as to allow for unlimited political activity are not acceptable.
Under the Income Tax Act, a registered charity that is established exclusively for charitable purposes can engage to a limited extent (i.e., devote no more than 10% of the charity’s resources) in non-partisan political “activities” which directly help accomplish the charity’s purposes. This includes, for example, distributing publications or holding conferences, workshops, or other forms of communication intended primarily to sway public opinion to the charity’s point of view. However, the Act specifically prohibits a registered charity from engaging in any partisan political activity. Partisan political activity usually means supporting or opposing, monetarily or otherwise, a political party or candidate for public office.
What types of organizations or activities are not “charitable at law”?
The public supports and benefits from worthwhile organizations and activities. However, the courts may not consider these as “charitable” in the legal sense. Many service clubs and fraternal lodges devote their resources to a mix of charitable and non-charitable activities.
For example, many clubs provide services for needy members of the community, but also hold regular social events for their members. Therefore, they cannot be registered as charities under the Income Tax Act. However, these groups could establish a separate organization to handle their charitable activities (e.g., a trust established to purchase wheelchairs for physically challenged children) and then apply for charitable registration on its behalf.
Further examples include organizations or endeavours established to aid a single identified individual or group of specifically named individuals that is established for private benevolence. The courts do not accept the act of private benevolence as charitable, since it lacks the necessary element of public benefit.
What types of charities are identified by the Income Tax Act
There are three types of charity. The designation of a charity depends on its structure, its source of funding and the charity’s mode of operation. The Income Tax Act requirements are different, depending on the type of charity:
- A charitable organization (e.g., a hospital) primarily carries on its own charitable activities. It can be a corporation, or it can be established by a statute, constitution, or trust document. Less than 50% of its directors/trustees are related persons and at least 50% of the funds it receives are from donors who are not related persons.
- A public foundation (e.g., a hospital foundation) gives more than 50% of its income annually to other qualified donees, usually other registered charities. It must be established either as a corporation or a trust. Less than 50% of its directors/trustees are related persons, and at least 50% of the funds it receives are from donors who are not related persons. A public foundation may carry on some of its own charitable activities.
- A private foundation may either carry on its own charitable activities, or it may give funds to other qualified donees, usually other registered charities. It must be established either as a corporation or a trust. Fifty percent or more of its directors/trustees are related persons or otherwise do not deal at arm’s length, and more than 50% of its funds are received from one person or from a group of persons who do not deal with each other at arm’s length.
- Public foundations and charitable organizations can only operate businesses that are related to their mandate or that are run substantially by volunteers. Private foundations are not allowed to engage in any business activity.
Real Estate Law and Development
Would it be advisable for a lawyer to review an Agreement of Purchase and Sale before I sign?
Whether you’re buying or selling property, it is always best to have a lawyer review your Agreement of Purchase and Sale before you sign.
If you are a buyer, your lawyer can help you understand the type of property you are buying, the risks associated with your purchase, and the scope of due diligence you should be completing and the time required to complete it. Your lawyer can also help guide you in terms of what information or warranties you may want from the seller, as well as the conditions you may want to include, such as time to arrange financing, building inspections, inclusion of fixtures or chattels, the closing dates, title information, and other special considerations.
If you are a seller, your lawyer can help you understand the nature of and risks associated with any representations or warranties or documents that you are being asked to provide to the prospective buyer. Your lawyer can also help ensure that the confidentiality of any information you share with your prospective buyer is adequately protected, and that any investigations or inspections of your property have a minimal impact on you while you still occupy the property.
Should I involve my lawyer when negotiating a refinancing for my commercial property?
Yes. Borrowers should always consult a lawyer before signing a new loan commitment. Commercial loan agreements often contain ongoing obligations that a borrower must comply with throughout the term of the loan. Your lawyer can help to ensure you fully understand those obligations and can negotiate with your lender to ensure that your obligations and the principal terms of the loan are reasonable given your circumstances and the purpose of the loan.
What is the Ontario New Home Warranties Plan Act (ONHWPA)?
The ONHWPA provides protection and, in some cases, compensation to purchasers of new homes or condominiums for matters covered by the legislation. Tarion is a private corporation established by statute to administer the ONHWPA and to regulate new home builders. A builder of a new home must be registered under the ONHWPA and all homes built by a builder must be enrolled under the Act. Typical agreements of purchase and sale from builders include provisions relating to the ONHWPA, the builder’s registration number, and enrolment of the home or condominium under the Act. A purchaser may be eligible for compensation for the loss of the deposit up to certain limits where a builder is unable to complete the contract and cannot return the deposit to the purchaser.
Tarion also provides compensation, where appropriate, to purchasers pursuant to the warranty provisions under the legislation. Pursuant to the legislation, the builder warrants for one year that the home is constructed in a workmanlike manner, is free from defects, and covers those deficiencies noted in the purchaser’s final inspection prior to closing the transaction. Water seepage, defects in materials, and work in electrical, plumbing, and heating systems are among the matters covered by a two-year warranty. A seven-year warranty covers major structural defects in the home. Information on warranties provided by Tarion under the legislation can be found on Tarion’s website at www.tarion.com.
What is title insurance and how does it work?
Title insurance is an insurance policy that protects the purchaser or lender in the event of an unexpected title problem that arises following the closing of a real estate transaction. Certain off-title inquiries that would otherwise be normal for the purchaser’s and/or lender’s solicitor are not conducted because the title insurance company provides the coverage for a problem arising post-closing that would have been revealed by a standard search. Depending on the nature of your transaction, your lawyer can advise what specific protection title insurance provides, and can help you decide whether title insurance is right for you and whether specific endorsements are required.
What does it mean to own a property as “joint tenants”?
Where real property is registered in the name of two persons as joint tenants, and one of them dies, title to the land automatically devolves to the surviving joint tenant by the “right of survivorship.” For example, if a parent and a child own property as joint tenants and the parent dies, the child automatically becomes the sole registered owner. This can help save on estate administration fees and allows the property to be registered in the surviving joint tenant’s name right away. Holding title as joint tenants is different from holding title as tenants-in-common. In a co-tenancy, each co-tenant holds title in accordance with a specified interest, such as a 25% or 50% interest in the property. When a co-tenant dies, that deceased co-tenant’s interest is dealt with by his/her estate (if the co-tenant is an individual) pursuant to the deceased co-tenant’s last will and the terms of any co-tenancy agreement. Your lawyer can advise you whether owning property as joint tenants or as co-tenants is right for you depending on your estate plan, and whether an agreement between owners is recommended.
Tax and Estate Planning
I have heard that probate fees are payable by my estate on my death. How are those fees calculated, and is there any way to avoid them?
Estate Administration Tax (formerly “probate fees”) is calculated on the total value of all assets in the estate, excluding life insurance proceeds and registered retirement savings plans payable to a designated beneficiary, property owned in joint tenancy, and real property situated outside Ontario. The fees are equal to ½% on the first $50,000 of assets and 1½% on the excess.
One way to reduce probate fees is through double wills. One will deals with assets requiring a certificate of Appointment of Estate Trustee (“probate”), such as cash on deposit with a financial institution, marketable securities, and real estate. The other deals with assets that do not require probate, such as shares in a private company. An individual with substantial investment assets may be able to reduce probate fees and capital gains tax on death by restructuring his or her investment portfolio using a private holding company and other tax planning measures.
I have accumulated substantial assets through my operation of a successful private company. I would like to eventually transfer the business to my children and at the same time keep my income tax burden on death to a minimum. What can I do?
The value of your business today can be frozen for death tax purposes, so that any increase in value from to the date of your death is assigned to one or more of your children. Moreover, currently it may be possible, depending on the number of your immediate family members, to make multiple uses of the $800,000 capital gains exemption and thereby significantly reduce the income tax exposure for you and your family. This planning may involve the use of discretionary family trusts, which currently can also be used effectively for legitimate income-splitting purposes without giving up control of the business enterprise.
Every time I turn around, it seems like the government is eliminating another income tax shelter. Is there anything left that can benefit Canadian taxpayers?
It is true that not as many income tax planning opportunities are available today, compared with past years. However, there are still several useful methods to reduce or eliminate income tax. One method that is commonly used is the universal life insurance policy or whole life policy, which allows investments to accumulate on a tax-free basis. There are different uses for universal life or whole life policies in estate planning, succession planning within a family-owned business, and charitable gift planning.
Is it possible to reduce my tax burden by moving some of my investment assets outside of Canada?
Reducing one’s tax burden should not be the only factor in deciding to invest offshore. However, depending on your particular circumstances, including retirement plans, source of assets or inheritances, and residence of intended beneficiaries, it may be advisable to take advantage of low tax-rate jurisdictions to reduce your overall tax burden as part of an overall investment strategy.
Brazeau Seller Law has been involved for years with transactions of this nature and has developed contacts in the financial community in many offshore jurisdictions to assist in finding the right structure for each client. In addition, as the exclusive Ottawa member of Meritas, we have immediate and direct access to the services of pre-qualified affiliated business law firms throughout Canada, the United States, and more than 70 other countries worldwide.
How can an employer protect its trade secrets and other proprietary information from misuse by employees and former employees?
By holding positions of power or responsibility in a company, certain employees may have fiduciary obligations that prohibit them, while employed and thereafter, from using their employer’s trade secrets and proprietary information—for their own benefit or the benefit of others—or soliciting the company’s employees. However, subject to such fiduciary obligations, departing employees retain an absolute right to go into direct competition with their former employer and make use of the skills and general knowledge they accumulated during their period of employment.
Since most employees do not have fiduciary obligations—and even those who do are only somewhat restricted in their ability to compete—contractual protection is essential to prohibit or restrict departing employees from competing with the company, soliciting clients or customers of the company, making use of the company’s trade secrets, or disclosing confidential information of the company. The likelihood that a court will enforce such prohibitions and restrictions is increased if they are entered into prior to—and as a condition of—employment, and if they are reasonable regarding their scope and duration.
For companies that are involved in the creation of new technologies, valid employment contracts are critical. Such contracts should also specify that all work product created by the employee becomes the property of the employer upon creation, without the employee retaining any rights in the work product.
The protection of intellectual property in the workplace requires knowledge and experience in several areas of law. The lawyers at Brazeau Seller Law that practise in the areas of employment, technology, and intellectual property law work together to ensure that our business clients can properly protect the intellectual property their employees develop or use.
How can an owner of intellectual property permit others to use it without losing its exclusive rights of ownership?
A company that owns intellectual property must diligently prevent others from making use of such property without permission. A failure to do so may result in it falling into the public domain, thereby ending the company’s exclusive right to use and exploit it. However, it is often desirable or necessary for the company to license use of its intellectual property to others—and, perhaps, to allow those licensees to sublicense to other parties. In such cases, the company may permit others to use its intellectual property for specified purposes, in specified markets, and for specified periods of time. Permission is typically granted in a written licence agreement that deals with such matters as licensing fees, the purpose and scope of the licence granted, the protection of the intellectual property, and liability issues. A franchise agreement, for example, is essentially a sophisticated form of licence that permits the franchisee to use the franchisor’s trademarks, processes, and proprietary information, provided the franchisee maintains certain standards of operation. A software distribution agreement is another example in which the owner of the software may permit a distributor to make and distribute copies of the software, subject to certain terms and conditions.
Brazeau Seller Law has years of experience negotiating and preparing complex licensing and sublicensing agreements on behalf of clients. If you need help in those areas, contact us to learn more.