Forming Your Company

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In this presentation, FMC's Alex Kilgour looks at the fundamental aspects of forming a company. From initial startup decisions to the stages of a businesses life, this presentation captures the entire process.

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Forming Your Company

  1. 1. CCR SmartStart Bootcamp 2012Forming Your CompanyPresented by Alex KilgourMay 29, 2012 1
  2. 2. OverviewA. Why incorporate?B. Corporate Structure – who’s in charge/responsible/liable?C. How to incorporate – what initial decisions have to be made? 2
  3. 3. Stages in the Life of a Business• Founder(s)• Outside investor(s)• Public company 3
  4. 4. Operating a Business• Sole proprietorship• Partnership (general or limited liability (LLP)• Corporation 4
  5. 5. Why Incorporate?• Limited liability• Taxation of capital gains vs. employment income• Ease of carrying on business (corporation as legal person) 5
  6. 6. What is meant by a Legal Person?• A corporation may hold property (tangible and intangible)• A corporation is able to contract• A corporation may commence a legal action• A corporation may exist after its initial shareholders 6
  7. 7. Who’s in Charge? (Part One)• Shareholders (owners appoint/elect directors)• Directors (directors select officer(s), e.g. CEO, CFO)• Officers (officers select employees/consultants)• Employees/consultants  7
  8. 8. Who’s in Charge? (Part Two)• Shareholders vote on certain fundamental decisions but do not  contract on the part of the corporation• Directors supervise management of the corporation (strategy  and oversight, e.g., approving contracts)• Officers manage the day to day activities of the corporation  (e.g., hiring staff, signing contracts, etc.)• Employees/consultants carry out the day to day activities 8
  9. 9. Shareholders and Shares• A shareholder holds shares issued to it by the corporation• Shares are issued for money, assets or past services (and  nothing else)• Majority rules (or does it?) 9
  10. 10. Shareholder Approval Rights (Annual)• Shareholders elect directors on an annual basis• Shareholders receive annual financial statements only (but do  not approve)• Shareholders appoint or waive the appointment of an auditor 10
  11. 11. Shareholder Approval Rights (Fundamental)• Statutory in the OBCA or CBCA (amending articles, etc.)• Contractural (shareholders’ agreement) 11
  12. 12. Shareholders’ Agreement – Why?• Restrict transfer of shares• Set out approval rights between shareholders and directors• Govern the sale of shares by the corporation and other  shareholders• Other matters of importance to the shareholders, e.g., founder  share repurchase rights 12
  13. 13. What Do Directors Approve?• Annual financial statements• Issuance of shares and granting of options• Hiring of CEO and other senior officers• Any other material decisions not decided by the shareholders  and not delegated by the Board to the CEO 13
  14. 14. How to Incorporate?• Incorporation is a right granted by the state• Federally (Canada Business Corporations Act (CBCA))• Provincially (Business Corporations Act (Ontario (OBCA))• Internet using website of Industry Canada or Ontario Ministry  of Government Services• Lawyer 14
  15. 15. Initial Decisions• Name of the company (number or name?)• First director(s)• Types and terms of classes of shares• Ownership of corporation (i.e. number of shares issued to each  founder) 15
  16. 16. Initial Documents• Articles of Incorporation (government form)• By‐laws (drafted by lawyer)• Organization resolutions of shareholders and directors  (drafted by lawyer)• Subscriptions for shares (drafted by lawyer) 16
  17. 17. Initial Agreements• Shareholders’ Agreement• Employment Agreements• Consulting Agreements• Confidentiality and Proprietary Information Agreements• Stock Option Plan 17
  18. 18. Articles of Incorporation• Name of the corporation (number or name)• Province where registered office is located (CBCA only)• Name of Incorporator (does not have to be first director)• Registered office address• Class(es) of shares and any maximum number of shares• Terms and conditions of each class of shares• Restrictions on share transfers (shareholder/board approval)• Minimum or maximum number of directors (1 and 10)• Restrictions on business of the corporation (nil)• Other provisions (authority to Board to appoint  directors between meetings of shareholders) 18
  19. 19. By‐laws• Procedural in nature ‐ no single prescribed form ‐ enhance or  vary the procedures set out in the CBCA or OBCA• Financial year, bankers, accountants• Execution of contracts• Corporation ability to borrow• Shareholder meetings (notice, quorum, proxies, ballot voting)• Board meetings (notice, quorum, place of meetings, electronic  meetings, Chairman, vacancies, removal of directors)• Officers – President, Secretary, Treasurer• Limitation of liability and indemnity for directors 19
  20. 20. • Thank you to Ontario Centres of Excellence for the opportunity  to speak with you today!• Questions? 20
  21. 21. Alex Kilgour, FMCalex.kilgour@fmc‐law.com(613) 783.9679www.fmc‐law.com

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