Reps & Warranties on a Share Sale

Today I spent some time working my way through a share purchase agreement, largely amending it to narrow the representations and warranties that my client was being asked to give, on the sale of his shares to another shareholder of the same company. The buyer actually has a great deal of knowledge about the company, and is involved in its day-to-day operations. In this context, it is very important to examine what each of the parties has knowledge of, how much risk the purchaser will bear and how many assurances the vendor will give. This is often a major area of negotiation between the parties, as there is usually a time period, after the sale, during which a purchaser can sue a vendor for any representation or warranty that was false. If you are buying or selling shares in a company, this is an important area to review and on which to obtain legal advice. It just makes good business sense.

Women in Business Awards 2011

Last week I attended this event to congratulate several business women in Barrie. In particular I want to congratulate Patricia Lechten, who won Business Woman of the Year this year, and is a fellow member of a women's business group I am involved with! Very exciting indeed! Congratulations to Patricia and all of the nominees!

Do You Have a Built In Buyer for Your Business?

I have coincidentally fielded three phone calls from clients in the past week, discussing the possibilities around selling their business to an existing employee. This can be a really good idea, provided the employee is prepared to pay fair market value for the business, and you are prepared to, perhaps, take payment over time. Often, a structured buy in can be negotiated, where the employee purchases a percentage of your shares of your business each year, slowly taking over the business. Of course, there are many issues to be considered. Even minority shareholders have rights, so you will want to be sure you have a shareholders agreement in place which sets out the rights and obligations of the shareholders, and clarifies roles. You will also have to consider how you might get the shares back if the employee, for instance, buys 10 percent of your business and then leaves or is terminated. But the employee likely knows your business and may make the perfect buyer if you can negotiate mutually agreeable terms. It's worth a look inward to see if the buyer of your business may actually be sitting in the office next door. Thinking ahead and planning your exit strategy makes good business sense.

Separate Corporate Properties Wills

If you own shares in a small business corporation, you may wish to consider the merits of a separate Will to deal with those shares apart from your other assets. Rarely do private corporations require a "probated Will" when a shareholder dies because the other shareholders and directors are usually family members or close colleagues who are well aware of the parties involved. This is different from institutions like banks that have very rigid policies around releasing money and other assets of a deceased individual. They require a "probated Will" or, in Ontario, a Certificate of Appointment of Estate Trustee with a Will. When a Will is submitted for probate, there is a court fee or probate fee which applies. The fee is calculated based upon the value of all of the assets that flow through the Will. So if your privately held corporation has value, that value could flow though a separate Will and would not be subject to the probate fees, saving your Estate money. Certainly something to consider and canvass with your lawyer.

NonProfits & Audit Requirements

Thanks to Karen Reynar, an associate in our Business Law Department, for this article! If you sit on a Board for a non-profit corporation or are otherwise involved with one, this article should be of interest. In the past, most non-profits have been required legally to have their fnancial statements audited. The exemptions from this were quite limited. This often comes as a surprise to directors and officers of these companies. For more information, contact Karen at kreynar@burgarrowe.com


Audit Requirements under the new Not-for-Profit Corporations Act(Ontario)

The Corporations Act (Ontario) which currently governs the Ontario not-for-profit sector exempts not-for-profit corporations that (i) are not public corporations, (ii) have annual income of less than $100,000, and (iii) have the consent of all of their member in writing, from the Act’s requirements with respect to the appointment and duties of an auditor.

As you may know, the Ontario government recently passed the Not-for-Profit Corporations Act, 2010 (the “ONCA”) in an effort to modernize the legislation governing the not-for-profit sector. The ONCA received Royal Assent on October 25, 2010, but will not come into force until a date to be named, which is expected to be in the fall of 2012.

As with the current Corporations Act (Ontario), the default rule applicable to every corporation under the ONCA is that it must appoint an independent auditor to audit its annual financial statements. However, as with the current act, the ONCA sets out some exceptions to the default rule. The exceptions under the ONCA, however, are different depending on whether or not the corporation is (a) a Charitable Public Benefit Corporation or a Non-Charitable Public Benefit Corporation (collectively referred to as “Public Benefit Corporations”); or (b) a Non-Public Benefit Corporation. (Please see the blog post entitled “Modernization of the Not-for-Profit Sector – Are you Ready?” for a discussion on the introduction of these categories, and what each of them means.)

Public-Benefit Corporations: Members of a Public-Benefit Corporation may pass an extraordinary resolution (i.e. a resolution passed by 80% of members at a special meeting) to (i) have a review engagement rather than an audit if the corporation's annual revenue in that financial year was more than $100,000 or such other prescribed amount and less than $500,000 or any other prescribed amount; or (ii) waive both the audit and the review engagement in respect of the corporation’s financial year if the corporation had annual revenue in that financial year of $100,000 or less or any other prescribed amount.

Non-Public Benefit Corporations: Members of non-Public Benefit Corporations may pass an extraordinary resolution (i.e. a resolution passed by 80% of members at a special meeting) to (i) have a review engagement rather than an audit if the corporation had annual revenue in that financial year of more than $500,000 or such other prescribed amount; or (ii) waive both the audit and the review engagement if the corporation's revenue for the annual year was $500,000 or less or any other prescribed amount.

In anticipation of the ONCA being proclaimed into force, it makes good business sense to become familiar with the level of financial review that may be applicable to your not-for-profit.

Modernization of the Not for Profit Sector – Are you Ready?

Thanks to Karen Reynar, a Corporate/Commercial Associate in our offices, for this guest blog! If you need more information with respect to your nonprofit, contact Karen at kreynar@burgarrowe.com

As you may know, the Ontario government recently passed the Not-for-Profit Corporations Act, 2010 (the “ONCA”) in an effort to modernize the legislation governing the not-for-profit sector in Ontario. The ONCA received Royal Assent on October 25, 2010, but will not come into force until a date to be named, which is expected to be in the fall of 2012.
On the day the ONCA is proclaimed into force two things will happen (i) the ONCA will apply to all not-for-profit corporations previously governed by the Corporations Act (Ontario), and (ii) the application of the Corporations Act (Ontario) to those corporations will be repealed.
In order to understand how the ONCA will apply to your not-for-profit, you must first understand that the ONCA divides not-for-profit corporations into (a) public benefit corporations and (b) non-public benefit corporations.

The first category of public benefit corporations is further broken down into (i) charitable public benefit corporations (a corporation incorporated for the relief of poverty, the advancement of education, the advancement of religion, or other charitable purpose), and (ii) non-charitable public benefit corporations (corporations that receive more than $10,000 in a financial year from the government or the public). Any corporation that is not a charitable public benefit corporation or a non-charitable public benefit corporation is a non-public benefit corporation.

It is important to determine whether your not-for-profit is a (a) charitable public benefit corporation, (b) a non-charitable public benefit corporation, or (c) a non-public benefit corporation because the ONCA treats each category differently, in particular with respect to audit and governance requirements.

Some other notable changes under the ONCA include those set out below, many of which have been introduced to mirror the Business Corporations Act (Ontario) which applies to for-profit business corporations in Ontario:

1. Incorporation will be done by Articles of Incorporation rather than Letters Patent, and the Articles of Incorporation may be filed electronically.
2. Not-for-profit corporations will enjoy all of the rights, powers and privileges of a natural person, subject only to voluntary restrictions in the articles. *Note: Charitable corporations will need to include restrictions in their articles if they wish to maintain status as a registered charity with the Canada Revenue Agency.
3. The ONCA introduces default by-laws that will be deemed to have been adopted if the board does not adopt standard organizational by-laws within 60 days of the date of incorporation.
4. The ONCA requires that any disciplinary action or termination of membership be done in good faith in a fair and reasonable manner. A procedure is fair and reasonable if the member is given 15 days notice and the right to be heard by someone able to revoke the termination or disciplinary action at least five days before it becomes effective.
It is worth noting that although the ONCA will immediately apply to not-for-profit corporations in Ontario once it is proclaimed into force, not-for-profits have three years to make the necessary amendments to their governing documents to bring them into compliance with the ONCA. After three years, any not-for-profit that has not yet updated their governing documents will be “deemed” into compliance. That said, in order to ensure a smooth transition and compliance with the new legislation, it makes good business sense to become familiar with the new statute now.

Corporate Property Wills = Good Business

First of all, do you have a Will? If not, you should! But if you own a private corporation, you should consider having two. In Ontario, you are allowed to have a separate corporate properties Will, which deals exclusively with the shares you own in your company and/or loans owing from your company to you. This can result in a substantial savings on death. Your regular Will is probably going to have to be submitted for probate (which means the government values your property and charges you $15.00 for every $1,000 of assets which flow through that Will). You don't usually need probate to deal with private company shares, so the idea is to have a separate corporate Will, so that the value of your company-related assets do not get factored into the calculation of your total assets during the probate process. The saving is 1.5% of the value in the corporation at the time of death. For those of you who have accumulated value in your companies, this is an excellent and fairly straight-forward strategy to keep more of your hard-earned money in the hands of your beneficiaries. Planning ahead, even for death, makes good business sense.