The Health of Your Business
Published June 29, 2019
Associated Areas of law
Each year, you see your doctor for your annual checkup to make sure you are in good health. But when is the last time you did the same for your business?
At the outset, most business owners are focused on getting their business up and running. They often do not get around to dealing with many important legal issues involved in organizing and protecting their business as it continues to grow.
“Checking up” on the legal health of your business can help you pinpoint potential issues and give you the opportunity to take preventative measures before these issues become a threat to the health of your organization.
We have categorized your business checkup into 5 key areas and provided few questions to help you briefly evaluate your business’s legal health:
1. Company Structure
Have the officers or directors of the company changed? For Nova Scotia companies, you are required to notify the Registry of Joint Stock Companies of any changes to the directors and officers of the company. For federally incorporated companies, you are required to notify Corporations Canada within 15 days of any changes to the directors as well as any changes to their addresses.
Did you hold your annual general meeting or prepare your annual resolution this year? Companies are required to hold an annual general meeting (AGM) of the shareholders at least once a year. Certain matters are required to be discussed, such as last year’s financial statements and the appointment of an auditor. For smaller companies, hosting a formal AGM is often unnecessary. In those cases, a written resolution can be prepared instead.
2. Operation & Management
Do you have a shareholders’ agreement? A shareholders’ agreement is a written contract between shareholders of company. It defines the rights and obligations between the shareholders and the company as well as sets out the shareholders’ understanding on matters related to the company’s management and operation, financing, organization and the transfer of shares. More notably, it can address potentially contentious issues before problems arise. All business owners should strongly consider getting a shareholders’ agreement if there is more than one person who holds shares in the company.
Do you have contracts with each of your key customers, clients and suppliers? All business owners should have written contracts with key clients, customers and suppliers. They go a long way in outlining expectations for all parties and protecting against potential disagreements or misunderstandings. Written contracts can also establish how long the relationship will last and on what terms the relationship can be terminated. Without anything in writing, key individuals that you do business with could end the relationship without any notice, which may result in financial detriment to you and your business.
3. Financial & Banking
Does your company have financing with a bank or other financial institution? If your company has a line of credit or a loan from a lender, there are often “banking covenants” associated with these loans that require you to operate your business within certain rules as set by the lender. If you are offside, your lender could, for example, increase your interest rate, seek a penalty payment or even demand full payment of the loan. All business owners should review their banking covenants regularly to ensure compliance.
Do any recent changes to tax rules apply to you and your company? In the last few years, there have been significant changes to tax legislation which have directly impacted small business owners, particularly in relation to income splitting and paying dividends to family members. All business owners should consider looking into how these tax changes apply to them and possibly reassess how income is drawn from their business.
Do you have employment contracts with all your employees? All business owners should have employment agreements with each of their employees which set out the key terms of the employment relationship. Most importantly, the agreement should specifically address the length of notice the employee is entitled to receive upon termination in order to avoid a costly severance payout. Special rules may apply to employees with 10 years or more of service. For key employees, the agreement ought to include non-competition, non-solicitation and/or non-dealings clauses to prevent your former employee from taking away your best clients, suppliers and employees if they leave to set up shop on their own.
5. Intellectual Property & Privacy
Do you have any protections in place for your business’s intellectual property? If your business is built on your new idea, creation or invention, or if you have created a specific brand or logo, it is important to protect that intellectual property (IP) from being copied or used by others. Some common types of IP protections include patents, trademarks and copyrights as well as non-disclosure and confidentiality agreements. All business owners should consider what IP protections may be necessary in order to preserve the value of their business.
Do you collect personal information from your clients or customers? The Personal Information Protection and Electronic Documents Act (PIPEDA) applies to businesses in Nova Scotia which collect, use, or disclose “personal information” in the course of its business activities. Personal information means “information about an identifiable individual”, which could include age, marital status, race or ethnic origin, financial information, and identifying numbers such as SINs or driver’s license numbers. Under PIPEDA, an organization may only collect personal information that is essential to the business transaction. Organizations are also obliged to protect personal information through appropriate security measures and to destroy it when it is no longer needed for the original purposes. All business owners should consider how they handle personal information and whether they are in compliance with PIPEDA and other applicable privacy legislation. Depending on the nature of your business, other rules may apply.
The Corporate/Commercial group at Patterson Law strives to provide our clients with information they need to know to make their businesses better. This content is for general information only and is not legal advice. Please contact us if you have any questions, or would like to discuss how we can help improve the legal health of your business.