Whether you are an entrepreneur or an investor, this presentation sets out the legal and business framework on How to Grow Your Technology Business into a profitable success!

1. A STEP-BY-STEP GUIDE TO GROWING A
TECHNOLOGY BUSINESS:
The Legal Aspects
A Bennett Jones Presentation
Toronto, Ontario
Lisa Abe-Oldenburg, Partner
Bennett Jones LLP
October, 2012

2. Growing a Technology Business
• Objective: To build a viable business selling technology to make
profit
Key Steps:
1. Set up your technology business structure
2. Raise financing, receive government grants and tax breaks
3. Hire developers, employees, subcontractors and suppliers
4. Protect ownership of your intellectual property in technology
5. Commercialize your technology by licensing and distribution

3. 1. Set up your technology business structure
• Sole Proprietorship
• Simple business name registration where individual person owns all assets
and liabilities, income/losses
• Risk: No limits on liability – all personal assets at risk
• Partnership
• Simple partnership name registration
• Partnership Agreement
• Risk: No limits on liability – all personal assets at risk
• Liability for employees' and partners' actions

4. 1. Set up your technology business structure (cont.)
• Corporation
• Separate legal entity – like a person, it can own assets incur liability
• Liability limited to money and assets invested in the company by the
shareholders or lenders, except for certain types of liability, e.g.
environmental, taxes, wages, personal guarantees (often required by
bankers)
• Incorporation under Federal or Provincial Business Corporations Act by
filing Articles – sets up shares
• Governance structure set up in By-Law, Shareholders Agreement and by
statute: shareholders appoint directors who then appoint officers of the
company
• More confidential, as private company registration doesn't disclose names
of shareholders to the public

5. Basic Corporate Governance Structure
Shareholders
(Owners)
Directors
(Elected)
President Secretary Treasurer
(Appointed Officer) (Appointed Officer) (Appointed Officer)

6. Which Business Structure to Choose?
• Factors to consider:
• Number of owners
• Limited liability
• Perpetual existence
• Dissolution may cause tax problems
• Participation in business
• Initial costs
• Continuing costs:
• Accountants, annual returns, etc.
• Financing
• Citizenship and residency
• Income tax implications
• Research tax credits

7. Partnership/Shareholder Agreements
• How are meetings to be held? What if there is a tie in votes – who gets
the casting vote?
• How will profits be split? When can dividends be declared? Tax year
end?
• Who is to sign cheques, contracts, promissory notes, loans, etc.?
Limits on signing authority?
• What if there is a material change in the business?
• How can business assets be sold?
• How and when can loans, bonuses or other payments be made to a
shareholder/partner, director or officer, or their relatives?

8. Partnership/Shareholder Agreements (cont'd.)
• Who decides if the business will enter into contracts, partnerships
or joint ventures with others?
• When can one partner or shareholder be forced to sell or buy
shares?
• How will each person’s share be valued in the event that there is a
buy-out?

9. 2. Raise financing, receive government grants and tax breaks
• Seed capital, e.g. additional shareholders, partners, angel investors,
VCs, joint venture companies
• Government grants, tax credits, e.g. SR&D
• Loans – financing agreements
• Public offerings (IPO), underwriters – consider start-up on smaller
stock exchanges
• Key factors for Investors: incorporation, management, history
(track record), profitability, assets (intellectual property)
• Risk: loss of ownership, personal guarantees

10. 3. Hire developers, employees, subcontractors and suppliers
• Non-disclosure and confidentiality agreements
• Before, during and after employment
• Prior to talking to potential investors, customers or suppliers
• Only way to protect trade secrets
• Employment contracts
• Supply, subcontracting or outsourcing contracts
• Non-compete agreements or clauses
• Transfers of IP ownership (assignments and waivers)
• Creations on-site, off site, during or after hours
• Warranties and indemnities for infringement
• Corporate policies, e.g. IP development and procurement
• Training and supervision

11. 4. Protect ownership of your intellectual property (IP) in
technology
• Note: IP is unique to each country – need searches and protection in each
jurisdiction based on local laws
• Patents – need to be registered under Patent Act
• Trade-marks - in words or logos; register under Trade-marks Act for
national protection; common law rights also may arise from use in Canada
• Copyrights – exist automatically under Copyright Act - works owned by
developer (or company that employs them)
• Other statutory IP, e.g. Industrial Designs, Integrated Circuit Topographies,
Plant Breeders’ Rights
• Trade Secrets (Common Law)
• Warning: When inventions are disclosed to public, lose ability to obtain a
patent (subject to grace period in some countries)
• TIP: Confidentiality/Non-disclosure Agreements (NDAs) and IP searches are
critical

12. What are some of the Rights that exist in Intellectual
Property?
• s. 3(1) Copyright Act – produce, reproduce, perform, publish,
translate, and depending upon the work, convert, adapt, present,
communicate by telecommunication, rent; s.14, moral rights of author
(integrity, association, anonymous)
• s. 42 Patent Act gives patentee exclusive right to make, construct, use
and sell the claimed invention
• s. 19 Trade-marks Act – use registered TM in respect of wares or
services throughout Canada
• other, e.g. duties of confidence, enforcement rights, right to sue, right
to file applications or prosecute pending applications, indemnity
rights, royalty rights, options

13. 5. Commercialize your technology by licensing/distribution
and responding to RFPs
• License Agreements – ability to retain ownership and “sell” the same
technology more than once for multiple fees/royalties
• Non-exclusive – sole – exclusive? Sublicenseable?
• Who is the licensee? One company? Its affiliates? End users? Distributors?
Subcontractors? Service providers? Sublicensees?
• Scope of rights, e.g.
make, use, sell, copy, distribute, modify, publish, translate, transmit by
telecommunication, sublicense
• Restrictions , e.g. by territory, product, process, CPU, users, etc.
• Fee structure: fixed vs. variable, taxes, currency
• Term and termination: perpetual (survives termination) or specified term? For
cause or convenience?
• Ownership of modifications/derivative works
• Warranties, indemnities, limits on liability
• Responses to RFPs and procurement process – ensure legal review

14. Conclusion
• Structure your technology business and financing carefully
• Have the right agreements in place to deal with potential risks
• Ensure you own all critical IP – get proper transfers/assignments and
waivers from all employees, subcontractors, suppliers and outsourcers
• Ensure your IP is protected by searches and registration – in each
country where you may be doing business
• Must have NDAs and non-competes
• Commercialize your technology world-wide by licensing
• Hire distributors and build a global customer base to make your
technology business more profitable