January 19, 2023 by Ava Aslani
When to hire a lawyer and why? Every startup is faced with these dilemmas and decisions, but it is always better—and cheaper—to be proactive rather than reactive with regard to legal work.
Associate Ava Aslani explores the pros of hiring a lawyer sooner than later and, ideally, from Day 1 of the incorporating process.
Should I hire a lawyer to incorporate my company?
Whether you are creating a company for a new business idea or you are ready to turn your growing side gig into a company, incorporating is a big step in your entrepreneurial journey. And as with any milestone, there are a number of decisions you’ll need to make. One of them is whether or not to hire a lawyer to file your incorporation.
We think you should. And here is why.
Many of our clients come to us after they have attempted to file their own incorporation. Some come to us when they are looking to bring on a business partner or investor and realize that their company will not get very far in the due diligence process. Others come to us because their company is about to be — or has already been — dissolved by the BC Corporate Registry because it has failed to file its annual report for two years in a row. Some even come to us just a few days after filing their incorporation, having gone to the bank to try to open a bank account for their company only to realize they do not have the documentation the bank needs to confirm the ownership and management of the company.
If you head over to the BC Corporate Registry’s website, you’ll see that you are able to file an incorporation without needing a lawyer. The website walks you through the process and, to be frank, it doesn’t appear to be rocket science. The problem is that while the BC Registry website walks you through the process to file your incorporation, it doesn’t explain any of the steps that come after the filing, which are necessary to validly establish and set up your company.
For example, the first directors of a company need to be elected by its incorporators (and usually re-elected each year by shareholders). This is done in a document called the Incorporators’ Resolutions. This document is not something that is provided by the BC Registry. Those directors are also required under BC law to formally consent to their election. This is done by having the directors sign a consent form, which outlines the legal requirements for someone to hold a director position and has the director confirm that they meet those requirements. This is another item that is not covered by the BC Registry’s incorporation process. Without these documents, no one has the legal authority to act on behalf of the company.
As another example, in order for shares to be issued to shareholders, the directors of the company need to authorize the issuances. Before the shares can be issued, the shareholders also need to actually pay for their shares. Yes, even if they are paying only $1.00 for those shares, money must change hands. If the shares aren’t paid for and issued following this procedure, then the company doesn’t have any shareholders. This can become a big problem in a number of scenarios, the most common being a CRA audit, especially if the company was paying out dividends to its shareholders.
Annual Maintenance and Compliance
Each year after incorporation, a company needs to file an annual report with the BC Registry confirming that the director and contact information the company has registered is up-to-date. The company also needs to hold an annual general meeting (AGM) for its shareholders each year to deal with things like electing directors, reviewing the company’s financial statements, and appointing or waiving the requirement for an auditor. The directors also hold an annual meeting to appoint officers, approve the financials, and declare and issue dividends to the shareholders.
Those who come to us having incorporated their company without the help of a lawyer are usually unaware of these annual requirements. Unfortunately, in some cases, it means their company is either facing dissolution or has already been struck by the BC Registry because it failed to file its annual reports.
To clean up a company’s records can be a lot of work. And it inevitably ends up costing the company more in legal fees than it would have to just hire a lawyer from the outset. Unfortunately, it’s a fact of life that reactive legal work is always more expensive than proactive legal work.
Having proper corporate records in place is extremely important, and most corporate lawyers will be able to help you get your company set up properly. But you need more than just corporate compliance to run a successful business. The way a lawyer can really add value to your business is by helping you take a proactive approach. That means first spending the time to get to know you and your particular circumstances, and getting an understanding of your business’s unique needs and challenges. This may involve several meetings and discussions. Be open to this and commit to going through the process. It is the only way your lawyer can make sure you are getting the strategic advice you need to help you identify and avoid risk, and put in place systems and strategies to grow your business successfully.
Ava Aslani has built a successful practice specializing in tech startups and digital entrepreneurs. She can help ensure you get up and running with a solid legal foundation and set your company up for success!