Listen - Next Steps When Incorporating Your Business

Business in the Okanagan continues to succeed despite the global pandemic. There are more and more buildings being constructed and tenants getting ready to move in. The business law team at FH&P Lawyers has been assisting clients for over 100 years in the Okanagan and is rooted in the community. The team provides legal services to people just starting out or that have been around for decades regardless if you are an individual with a small business or a large multi-jurisdictional corporation.

This FH&P Lawyers podcast entitled “Law Talk” will educate listeners on business matters including whether or not to incorporate, estate planning with a business and all other legal issues businesses face. You are welcome to ask our lawyers a question and they will answer it during an upcoming podcast. Email podcast@fhplawyers.com with your questions.

In this episode Partner Clay Williams and Associate Tanvir Gill discuss some of the next steps after deciding to incorporate your business. Should your incorporation be a numbered company and who are your directors and/or shareholders?

FH&P Lawyers · FH&P Lawyers Law Talk Podcast - Episode 2

Transcript:

Clay Williams: Welcome to the second edition of our podcast. I’m Clay Williams and with me is Tanvir (Gill). So last time we talked about the advantages of incorporating your business and we wanted to continue with that theme. If you have already decided that you are going to incorporate and there are good reasons to do so if you listened to our last podcast. So now that you have made that decision could here are some of the things to consider carrying forward.

The first thing we wanted to talk about is the name of your corporation now. I'm a big fan of actually using the name as the incorporation I don't know what you think Tanvir.

Tanvir Gill: I have clients that go both ways so if you are just wanting a holding company you can have a number and you are operating under “1 2 3 4 5 BC Ltd.” So you can go the number route but then you have the clients that are wanting that branding, wanting that association and there's a name that they want to tie to their company which probably happens a lot more often.

Clay Williams: Yes I think that is a really good point I mean if you are trying to establish and build up some goodwill if you are an operating company as opposed to a holding company then why not get a name that you can use within your corporation. What I usually tell my clients is, take a look at the Yellow Pages or online and try and find a name that isn't being used at least in the local community to start. Then what we can do is we will ask you for three different names, because it cost the same, and the register will look at the first name, second and third name and it will tell us which one they accept because there's another way to do it like you say you can just incorporate as a number company and if you do you can still do business as a numbered company and you would be using a trade name. So you can be “numbered company BC Ltd doing business as Acme Trading” but you still are supposed to register that name. So there is a partnership or proprietorship registry so if you incorporate as a number company then you would register the trade name to the company. I say to my clients if you are going to be developing goodwill why not just do it from the get-go?

Tanvir Gill: I have a lot of clients who will tell me the name that they want and it’s their kid's names put together or something that is very mom and pop. It's great when you think about it but I try to get them to think through what's going to be rejected right off the bat. Anything that's similar to something that's already in operation is not going to work. Anything that's confusing with a larger trademark, for example, if I want to have a shoe company and I want it to be called Nike Puppies, that's going to obviously get rejected, you are not going to get that name so we try to say go distinctive and then go descriptive. So something that's distinct to you and then something that is descriptive and I think I brought this example up last time but if you're going to go with Kelowna Renovations or Kelowna Construction that's not going to work because the way the corporate registry looks at names and approves names they are going to read left to right. If you have Kelowna Kelowna and then renovations constructions, they are way too similar so you are automatically defected so I always try to ask clients to think about getting something different in the beginning; “Kelowna 2021 Construction” that way you might be approved differently based on the fact that you have something in the middle that breaks out the distinctive in the descriptive element of the name.

Clay Williams: Yes and that’s why it is important to give us three as well. The registry might very well reject one and then move on to the next. I think the current cost is $36, so you might as well give us three rather than just one.

Tanvir Gill: It does take a lot of time to get a name as well. Clients are often in a rush to incorporate and they say “this is my name and I need to incorporate right now.” There is actually a backlog sitting at corporate registry on when they are going to pick up a file and start looking through your three names so if clients are in that much of a rush we always say there is a rush fee that you can pay and it's around $100, which is not a lot of money, it’s faster and you bring up the timeline to five days compared to maybe two or three weeks so that's always an option.

Clay Williams: I guess we should talk about is what kind of protection that gives and I think it's really important for people to understand that even if you do get that name Incorporated even if you do use a trade name and registered in the proprietorship registry it doesn't give you any protection on that name and there is another level of protection and that is a trademark. So if it is really important that you are the only one using that name or you are concerned that there may be somebody else out there that is going to attack you down the road then you can also get a trademark.

Tanvir Gill: Especially if you are looking to conduct business outside of BC this might be something that is more important. If that is the case then a lot of times we connect clients with what is called a ‘trademark agent,’ we get a little bit of information from them about not only what the name is but what is your actual goods and services that are associated with that name? So with a trademark, it's not only just a name but it's also what are you doing. Is it retail, are you developing some type of garments are you developing some type of grass turf? What is the actual good itself in association with that name and then the trademark agent will walk us through the applications and how to get that trademark going.

Clay Williams: If you are doing that, you may want to consider trademarking the logo and the tagline, so that is often done as well. Especially if you are really interested in building that goodwill, building that brand.

Tanvir Gill: We should trademark “rooted in your community.”

Clay Williams: We are trademarking that, in fact I think it may be trademarked now. So the next thing we are going to talk about is the different positions or actors that are involved in a company and the two we are really going to focus on are the directors of a company and the shareholders of the company.

Tanvir Gill: In general each company, once we incorporate you is going to have at a minimum one shareholder and at a minimum at least one director. So what they do is different so I think to be simple we can start off with directors. What a director does for the company is going to be things like issuing shares, declaring dividends, they redeem they can purchase shares, they will approve financial assistance for the company, they will appoint officers and then they will specify officer duties.

Clay Williams: They are really the ones that are responsible for running the company, making all of the financial decisions and decisions with respect to the operation.

Tanvir Gill: The way I like to think about it is, as a company you can have 10 different shareholders that are there to make up this company, but they are not the ones that want to do all the day-to-day things for the corporation. They don't want to sign all the stuff, they don't want to do all the approvals, so having directors you have essentially that management of the corporation through that director and so you are not back logging all your shareholders to do all of that.

Clay Williams: I think it's important to point out, it is a position of responsibility it is a fiduciary responsibility. There are restrictions on who can be a director, for example you have to be 18 years of age, you can’t have been found by a court to be incapable of managing your own affairs and you can't be an undischarged bankrupt or a convicted of a certain offenses. You have to have a duty of good faith and always act in the best interest of the company and the director is held to the negligence standard too and must show due care diligence and skill and they must follow the provisions of the British Columbia Corporations Act. There are liabilities that come with being a director as well.

Tanvir Gill: If directors are not acting in the best interest of the company maybe they are acting out of their self-interest instead of for the company and they can be jointly and severally liable for losses or damages that a company suffers.

Clay Williams: A lot of times will be recommending for our people that are incorporating that you have directors insurance in place.

So let’s talk about a shareholder. Ownership in a company is represented by shares in a company and the holder of a share in a company is a shareholder. So really a share represents the interest of a shareholder in a company and serves to represent their contractual rights and restrictions that exist between the company and the shareholders. A shareholder does have certain rights and certain powers within the company. Very often they have the right to sell their share, although that is often restricted in the articles or the shareholders agreement.

Tanvir Gill: Two of the biggest powers that I associate with shareholders would be the power to issue shares and then the power to transfer shares.

Clay Williams: We should talk about the power to transfer shares, very often in a closely held company, and that is a company with not very many shareholders, there are restrictions on the right or at least on the right to transfer your shares at least the right of first refusal to the other shareholders to make sure that the original group kind of stays the same and you pick who is going to be in that group. Certainly a shareholder can transfer shares and has a say in the larger functioning of the company.

Tanvir Gill: The day-to-day operations, the directors handle but when it comes to bigger things like let's say a company changing its name the shareholders have a say when it comes to that. Also when it comes to creating a new class of shares a shareholder is going to have a say in that.

Clay Williams: Disposing of the most of the assets of the company, so big picture stuff you are going to need the shareholders to sign off on that kind of stuff. But you are right, the day-to-day stuff is done by the directors, the anticipation is that there is less involvement in the management of the company for shareholders. But it comes with the benefit as well that there is no liability as a shareholder. I guess that is not entirely true your liability is limited to the value of your share.

Tanvir Gill: But you are not personally liable how a director would be when it comes to issues that a company runs into.

Clay Williams: We did get a question from our last podcast about the tax implications of incorporating and little more detail. For the most part we will work with and rely on an accountant to provide us with that information, but I think that's a great question and probably in a show down the road we will ask an accountant to join us and we can hash that out in more detail.

Tanvir Gill: In a future podcast we are going to talk about how the directors manage the company and how shareholders manage the company through things like director’s meetings, annual and special general meetings and we are also going to get into the topic of shareholders agreement; what they are, should you have them and what do they do for you when you have a company?