Business Law Archives - Page 2 of 2

Successful Business Plans Include Marriage Agreements

Written by Tracy Knight, Associate

Yes, it’s true. Business professionals, developers, and entrepreneurs are used to taking calculated risks in order to grow the company. It is one of the foundations of success. But if a business could crumble as a result of a business partner’s shaky marriage, everyone will agree there is a risk that business owners need to mitigate.
Consider your business. You may have built up the company, family farm, real estate portfolio, or other entrepreneurial venture by investing long, hard hours, learning from your parents, joining forces with your friend or siblings, and hoping to pass on your now successful venture to your children. Rather than looking at yourself, consider your business partners and their spouses (maybe your in-laws, maybe your siblings, maybe your best friend). You own a growing enterprise with someone else and you have no control over your partner’s personal relationship with his or her spouse. While your own marriage may be solid, consider what may happen if there were a relationship breakdown happening to one of your business partners.
In British Columbia, the Family Law Act says that each spouse is entitled to 50% of family property that exists on the date of separation. “Spouse” includes people who have lived together in a marriage-like relationship for 2 years. “Family property” is anything that either of the spouses own. There are some exceptions to family property such as assets brought into the relationship, in which case the growth in value of those assets is family property, still to be divided.
Translated into the business scenario, you could be in a situation where a spouse is entitled to 50% of the value of one partner’s portion of the business. Can your business partner afford to make that payout in cash? Likely not. Can your business handle buying out one of the partners so that a payout can be made? Maybe. But your partner will no longer be a partner in the business – what if that partner’s contribution is crucial to your business success? What if your business branding is connected to the business partners? What if a buyout must be made at a time when other unexpected expenses arise? What if…?
A marriage agreement is not about unfairness to a departing spouse. Instead, it is a pre-determined plan to mitigate risk – it should set out mechanisms for payouts that are business-centered and fair to the departing spouse. The business plan should consider valuations, privacy, and the circumstances when a partner will be bought out. Once a family law matter is underway, the business-friendly options to carry out a division of property (and indeed some of the rational thought processes) are diminished. Judges tend to employ cut and dry divisions of property and only after the financial affairs of the business have been aired before the court. Parties can reach alternative agreements, but there is little incentive for a departing spouse to help the business survive. The reality is that self-interests tend to take over.
Successful business plans include marriage agreements. Seek advice from a legal team that approaches your business strategy with input from all areas of law.

September 19, 2017

Preparing to Transition Under the New Societies Act (B.C)

Business Law, Blog

Written by Krystin Kempton, Associate.

The new Societies Act comes into force on November 28, 2016. All societies in British Columbia will have two years to transition under the Societies Act or face dissolution. To transition, a society must submit a transition application, which contains the society’s updated constitution and bylaws (as prescribed by the Societies Act and described below) along with a statement of its directors and registered offices. The Society will need to consider whether to identify itself as a “member funded” society, as discussed below. The transition application is submitted online through the BC Registry Services website.

Constitution and Bylaws under the new Societies Act

The content of a society’s constitution will be limited under the Societies Act. Each society will need to prepare a version of its constitution that consists of nothing but the society’s existing name and purposes, word for word as it appears in the society’s constitution on file with the Corporate Registry. Any provisions of the existing constitution other than the society’s name and purposes must be relocated to the society’s bylaws.

The society will need to prepare a complete set of its existing bylaws in consolidated form, including any amendments to the original bylaws that have been filed with the Corporate Registry. The provisions of the constitution, other than the society’s name and purpose, must also be added to the bylaws, without alteration. Any provisions from the constitution currently identified “unalterable” for a society must now be identified as “previously unalterable”.

Alternatively, a society may wish to prepare a new set of bylaws – either adopting the standard form of bylaws under the Societies Act or tailoring the standard bylaws to fit the needs of the society. Preparing to transition is a good opportunity to clarify or refine provisions. However, if the society adopts new bylaws on transition, it cannot change or delete any of the “unalterable provisions” that were in its constitution. Those must be added in, without alteration, to the new bylaws and identified as having been “previously unalterable”. Once the society has transitioned, it can then alter previously unalterable provisions by complying with the Societies Act bylaw amendment procedures.

Procedure for Transitioning

A society does not need to have a general meeting and a vote in order to reorganize its constitution and bylaws if it is simply moving provisions from the constitution to its bylaws, marking certain provisions as having been previously unalterable, and consolidating its bylaws.

If the society adopts new bylaws or amends its bylaws (other than adding the provisions shifted from its constitution and marking them as previously unalterable, or consolidating its bylaws), the members of the society must approve the bylaws or the bylaw amendments by a special resolution. What constitutes a special resolution will vary depending on the society’s bylaws.

In the transition application, the society will be asked whether it wishes to designate itself as a “member funded society” by including a statement to that effect in its constitution. A member funded society is funded primarily by its members to carry on activities for the benefit of its members (i.e., sports clubs, golf courses and professional associations). Member funded societies have modified standards applicable to them under the Societies Act. The members of the society need to authorize this designation by a special resolution.

Finally, the directors and registered office information must be updated. The society must also be up to date with annual reporting in order to transition.

There is no filing fee payable to transition under the Societies Act.

November 14, 2016

Managing Business Risk: Use Employment Agreements

Business Law, Blog

Written by Andrew Powell, Partner

From an employer’s perspective, employees are a necessary evil. A growing business cannot exist without employees, but it is vital for any business owner to remember that employees are not invested in the business that employs them. Employees are not owners. The relationship of employers to employees is very much a contractual one. Employees provide a service in exchange for money, so in a very real sense, the business is the customer of the employee.
The employment relationship constitutes a very special type of contract. Although for many purposes at law employees are differentiated from independent contractors, they are in fact in a contract with their employer. What makes the employment contract a little unique is that many of its terms are imposed by law – either under legislation such as the Employment Standards Act (for non-union workers) and the Workers Compensation Act, or because of common law principles that affect the employer-employee relationship. In either case, many of these terms of an employment arrangement may not be understood or even be known by either party. For this reason, when an employment relationship breaks down, there may be liabilities faced by employers that were unexpected and for which the employer may well be completely unprepared.
A typical example, frequently litigated, is the calculation of severance pay. Severance pay is an amount of money paid to a worker who has been dismissed without cause, and it is intended to cover that employee’s lost wages for enough time for that employee to reasonably be able to find similar employment. Generally, it is assumed that an employee will become more secure, more specialized, and more highly-compensated the longer that he or she occupies a position, so they will require more time to find equivalent positions if they are let go. Longer-term employees require longer notice periods, and consequently higher severance payments in lieu of that notice period.
Under s.63 of the Employment Standards Act, the employer’s liability for severance is one week’s wages after three months of employment, two week’s wages after twelve months of employment, and an additional one week’s wages per year of employment up to a maximum of 8 week’s wages.
Case law in British Columbia, however, has put quite a different light on the amount of appropriate severance pay. Although each case is determined individually, it would be more accurate to say that an employer’s real liability is closer to one month’s wages per year of service, to a maximum of about 24 months. This is a significantly greater liability than the one offered by the Employment Standards Act, and in the absence of a written employment contract, it is likely the one that will govern. A very important way to limit liability for severance pay, then, is to have a written employment agreement in place that confines severance pay to the amount set out in the Employment Standards Act.
Employment agreements can do much to help provide certainty and security in a number of ways, and can help cover exposure in areas that employers never anticipate being contentious until after the employment relationship breaks down and a dismissal becomes necessary for the business. Employment agreements can not only limit severance pay, they can define workplace responsibilities, determine compensation, and can even set out circumstances where employees can be dismissed without notice or severance pay. They can be tailored to any business or individual circumstance, and can be a very significant legal tool that a company can use to manage the consequences of its business decisions and take control of its own risk.

April 11, 2016

Electronic Signatures: Are they legal? Are they safe?

Real Estate, Business Law, Blog

Written by Nixon Wenger Lawyer, Dan Poulin.

Not all contracts need to be written down or signed, an oral or spoken contract can generally be enforced by our court system, as long as there is enough evidence to convince the court that a contract actually existed. However, there are certain types of contracts which require that the parties sign the contract in order for it to be enforceable by our court system, such as Real Estate contracts. You may wonder whether a signature requirement means a person needs to put pen to paper, or if some kind of electronic signature would have the same effect. Further, you may wonder whether an electronic signature would be any more or less persuasive in court as proof that there actually was a contract.
First, electronic signatures have the same legal effect as handwritten signatures. Most provinces in Canada have passed legislation which clarifies that electronic signatures may be used, including the Electronic Transactions Act in British Columbia. This Act defines an electronic signature as “information in electronic form that a person has created or adopted in order to sign a record and that is in, attached to or associated with the record”. Therefore, an electronic signature does not need to look like a traditional signature, although sometimes images that have the appearance of a traditional signature are used.
The next question is whether an electronically signed document would be better or worse than a traditional signature if you needed to prove in court that a contract was signed. The answer is that neither electronic or traditional signatures are inherently better than the other, it depends on the circumstances in which the signature was made. For example, you may receive a contract document that appears to be signed by a person you expected to enter a contract with from a public fax service number. Alternatively, you may have the other party come to sign the contract document personally and also bring some other people to witness his signature. In the second scenario you would have much stronger proof that the other party entered the contract, as you would have the original document and people that could confirm the document was signed by the right person.

Similarly, some electronic signatures would be much better proof in court than others, as they can range from simply typing your name at the end of an email (which may not be very strong evidence, particularly if other people have access to your email) to verifiable digital signatures that can only be attached to electronic documents after the signor signs up for the digital signature service and passes verification procedures such as entering a password before signing. In fact, with the use of digital signature services like AuthentiSign or DocuSign some real estate agents and lawyers may not require a witness signature, as the digital signature service itself acts as a type of witness.
There is no need to be afraid of electronic signatures with respect to legality. However, just like regular signatures, you should ensure that if there would be significant consequences to a signature being challenged, there are safeguards in place that will provide you the evidence you need to enforce the legal document.

March 3, 2016