Establishing a strong foundation for your business is just the beginning of your entrepreneurial journey. At Fauri Law, our Business Formation services provide the groundwork needed to launch your startup into the market...
Establishing a strong foundation for your business is just the beginning of your entrepreneurial journey. At Fauri Law, our Business Formation services provide the groundwork needed to launch your startup into the market confidently, ensuring an investable structure.
Company Incorporation Service
- Getting Started: Choosing the Right Legal Structure
Selecting the right legal structure for your business is a foundational decision. We offer expert guidance to help you choose and form the most suitable entity for your venture, whether it’s a corporation, partnership, or another structure. Unleashing Your Startup’s Potential: A Guide to Funding Options.
- Protecting Your Intellectual Property
Protecting your innovative ideas and intellectual property is vital for your startup’s success. Rely on our experience to assist you in all aspects of creation, acquisition, use, and commercial exploitation of your technology and intellectual assets. Learn more.
- Founder Agreements
Establishing clear agreements among founders is crucial for startup success. We can assist in drafting comprehensive founder agreements that outline roles, responsibilities, equity ownership, and dispute resolution mechanisms among founders. Learn more.
- Making Deals: Drafting and Negotiating Contracts
We can assist you with a wide range of contracts and agreements, including shareholders agreements, employment contracts, non-disclosure agreements, licensing agreements, commercial contracts, and more. With FLStartup Accelerate™ and FLConnect™, leverage our suite of agreements available under FLDoX™ and FLDr@ft™ to generate key legal documents that help to raise funds, protect your business, and hire and incentivise your team.
- Raising Funds: Navigating Legalities of Fundraising
As your business flourishes, our strategic expertise extends to our dedicated Fundraising Practice, where we guide you through securing the necessary capital to fuel your growth. We can guide you through the complex legal and regulatory requirements surrounding fundraising and securities offerings, including SAFE financing, convertible notes, and various financing strategies. Don’t Let Funding Hurdles Stop Your Dream: Explore Your Options Today.
- Efficient Equity Management:
Leverage FLStartup Accelerate™ to streamline the issuance, approval, and acceptance of SAFEs, equity and option grants seamlessly. Our subscription plans includes a seamless Integration with a leading equity management platform to ensure efficient equity management for your startup’s growth. This includes equity incentive plans, cap table tracking, options exercise and vesting schedule tracking, and SAFE issuance. Learn more.
- Growing Your Business: Reach for the Stars
As your startup expands, strategic moves like mergers & acquisitions, joint ventures, and strategic alliances become essential. We possess the expertise to guide you through these transactions, from initial negotiations to successful closures.
Choose the type of company you want to incorporate
Sole Proprietorship
This is the simplest and most common form of business in Canada. A sole proprietorship is a business owned and operated by one person. This option requires minimal paperwork and legal fees, and the owner has full control over the business. However, the owner is personally liable for all business debts and legal issues, and the business may be harder to sell or transfer to others.
Example: John wants to start a small landscaping business. He decides to set up a sole proprietorship to keep things simple and avoid the costs and paperwork associated with other business structures. John is the sole owner and operator of the business. He has complete control over the business, makes all the decisions, and is responsible for all aspects of the business. He can also keep all the profits. However, John is also personally liable for all business debts and legal issues. If the business incurs debt or gets sued, John’s personal assets could be at risk.
Pros:
- John has full control over the business.
- Setting up a sole proprietorship is easy and inexpensive.
- John can keep all the profits.
Cons:
- John is personally liable for all business debts and legal issues.
- John may find it harder to raise funds or get loans for the business.
- The business may be harder to sell or transfer to others.
Partnership
A partnership is a business owned by two or more people who share profits and losses. Partnerships can be general (where all partners share equally in the profits and losses) or limited (where some partners have limited liability and control). Partnerships are easy and inexpensive to set up, but partners are personally liable for business debts and legal issues, and partnerships may be harder to dissolve or transfer.
Example: Sarah and Tom want to start a small accounting firm together. They decide to set up a general partnership to share profits and losses equally. They are both owners and operators of the business, and they both have equal control over the business. They can also share the responsibilities and workload. However, both Sarah and Tom are personally liable for all business debts and legal issues. They may also have disagreements about how to run the business, and it may be harder to dissolve or transfer the partnership in the future.
Pros:
- Sarah and Tom can share the profits and responsibilities equally.
- Setting up a partnership is easy and inexpensive.
- They can benefit from each other’s skills and expertise.
Cons:
- Sarah and Tom are personally liable for all business debts and legal issues.
- Disagreements between partners may arise, which can affect the business.
- The partnership may be harder to dissolve or transfer in the future.
Corporation
A corporation is a separate legal entity from its owners (shareholders), and it can own assets, enter into contracts, and sue or be sued. Corporations offer limited liability protection to shareholders, but they are more complex and expensive to set up and operate. Corporations are also subject to more regulation and formalities, such as holding annual meetings and filing annual reports.
Example: Jane wants to start a technology company and raise capital from investors. She decides to set up a corporation to protect her personal assets and attract investors. Jane is the founder and CEO of the corporation, and she owns a significant portion of the shares. The corporation is a separate legal entity from Jane and has its own assets, liabilities, and legal status. Shareholders in the corporation have limited liability protection, and they can benefit from the profits and growth of the corporation. However, corporations are more complex and expensive to set up and operate, and they are subject to more regulation and formalities.
Pros:
- Jane has limited liability protection for her personal assets.
- The corporation can raise capital through the sale of stocks.
- The corporation can exist beyond the life of its owners.
Cons:
- Setting up and operating a corporation is complex and expensive.
- The corporation is subject to more regulation and formalities.
- There may be conflicts among shareholders that affect the business.
Limited Partnership
A limited partnership is a business structure that has both general partners and limited partners. The general partners are responsible for managing the business and have unlimited liability for the debts of the business. The limited partners are investors who do not participate in the day-to-day management of the business and have limited liability. Limited partnerships are often used for real estate ventures, private equity, and venture capital investments.
Example: In a real estate scenario, suppose John and Jane want to invest in a rental property, but they don’t have enough funds to finance the purchase themselves. They can form an LP with John as the general partner, responsible for managing the property and taking on the unlimited liability, and Jane as the limited partner, who invests in the business and is liable only for the amount of her investment. By forming an LP, John and Jane can limit their personal liability and pool their funds to purchase the property, which they can then rent out to generate income.
Pros:
- Limited personal liability for limited partners: Jane can invest in the rental property without worrying about her personal assets being at risk in case of any legal disputes.
- Access to additional funding and expertise: John and Jane can combine their resources to invest in the property and leverage their expertise in property management to ensure the success of the venture.
- Tax advantages for limited partners: As a limited partner, Jane can claim tax deductions for her investment in the LP, and the income generated by the rental property will be taxed at her personal tax rate.
Cons:
- Unlimited personal liability for general partners: John, as the general partner, will be personally liable for any debts or legal issues that arise in the operation of the rental property.
- General partners have control over the business: John will have complete control over the management of the rental property, which could lead to conflicts with Jane if they disagree on the direction of the business.
- Additional reporting and compliance requirements: An LP has more complex reporting and compliance requirements than a sole proprietorship or partnership.
In this scenario, forming an LP is a good option for John and Jane because it allows them to limit their personal liability, pool their resources to invest in the property, and take advantage of tax benefits. However, it’s important to note that LPs are not suitable for all businesses and industries, and consulting with a lawyer or accountant is recommended to determine the best legal structure for your specific circumstances.
Overall, the best option for a business in Canada will depend on its unique circumstances and goals. From a legal perspective, a corporation is often considered the best option since it offers limited liability protection for shareholders. From a business perspective, the best option may depend on the specific needs of the business, such as the need for capital, control, and flexibility. From a tax perspective, the best option may depend on the amount of income the business generates and the tax rates for each legal structure.
Ready to Accelerate Your Startup’s Liftoff?
Unlock FLStartup Accelerate: Tailored for startups aiming for accelerated growth
Price: $6,000 per year (equivalent to $500 per month)
Access 30-Hours On-Demand Legal Support per year, covering:
- Business Formation and Entity Selection.
- Company Organization Documents (Bylaws, Director Appointments, Corporate Resolutions)
- Founders Agreement with vesting schedule, or Shareholders Agreement.
- Funding Support and Investors Relations.
- General Counsel Services (including contract review).
Plus:
- Benefit from 30 Phone Consultations/year with our seasoned legal experts.
- Comprehensive access to (12) FLDr@ft documents, fine-tuned for startup needs.
- Comprehensive access to (20) FLDox startup toolkit documents.
- Streamlined Fundraising Assistance with Efficient Document Generation.
- Efficient Equity Management.
- Enjoy cost-effective pricing and save up to $23,500 annually compared to traditional hourly rates.
- Enjoy 15% savings on additional legal services beyond your subscription.
Take advantage of FLStartup Accelerate and ensure your startup’s launch is nothing short of spectacular. Learn more and let’s make your startup’s liftoff a success.
Take the Next Step
Ready to take your startup to the next level? We’re here to help you make informed decisions. Take our quick quiz below to discover the ideal legal support solution for your startup. Whether you’re in need of tailored guidance, funding assistance, or specialized legal resources, our FLStartup Accelerate Subscription Plan has got you covered. Answer a few questions, and we’ll provide you with a personalized recommendation. Let’s get started on your journey to startup success!
Have questions or need more information about FLStartup Accelerate™? Contact us to connect with our team and get personalized assistance tailored to your startup’s needs.
- Meridian Credit Union, a leading financial institution in Toronto, in a share subscription transaction in FinTech Startup that includes legal due diligence, software licensing, drafting of transactional documents and securities law compliance on matters such as private issuer and exemptions from prospectus.
- Motusbank, a federally chartered online bank in Toronto, in standardizing the terms and conditions of the bank’s cloud-based services, including Saas agreements, software licensing agreements, click-wrap agreements, and other technology-related agreements for the use of the bank’s online users.
- Fincantieri, the largest naval shipbuilding group in the world, in naval ship IP design agreements, transfer of technology and licensing agreements negotiated and signed with several armed forces in the Middle East region to protect Fincantiari’s intellectual property rights.
- Infrastructure Ontario‘s Request for Proposal Documents (RFPs) of the Go-Rail Expansion Project.
- Infrastructure Ontario‘s Go-Rail Expansion project agreement, a single fully integrated contract using the Design-Build-Finance-Operate-Maintain (DBFOM) model.
- Infrastructure Ontario’s Transit Oriented Communities (TOC) project agreements including term sheets, joint ventures, construction lease and option agreements with developers to jointly build mixed-use developments as part of Ontario Line subway project.
- Infrastructure Ontario‘s Real estate matters such as expropriations/ collect and compete, land acquisition and disposition.
- Jordan Aviation’s major shareholder in an airline company, to conclude a US$10 million share acquisition transaction.
- Jordan Aviation, in its set-up of an aviation fund of US$30 million. Established fund company, management and sponsor companies. Prepared investment management agreement and subscription agreement. Moreover, drafted dry lease contracts for aircrafts as part of the fund transaction.
- Fincantieri, in the negotiation of a joint venture transaction with Al Zamil Shipyard in KSA for the design and construction of several offshore vessels and building of facilities for military and offshore vessels in the new King Abdul Aziz Port in KSA.
- National Holding, in the acquisition by a German firm (Knauf) to 51% stake in National Holding’s subsidiary.
- National Holding, in a joint venture transaction with Vivartia, a Greek holding group based in Athens.
- National Holding, in a US$36 million acquisition by Qatari sovereign wealth fund to National Holding’s shares in a Steel Factory in Egypt.
- National Holding, in a US$40 million capitalization in a home appliances factory in Jordan, with ownership restructuring.
- Dubai Bank and Dubai Holding, a global conglomerate and sovereign wealth fund of the government of Dubai and its ruling family, in producing a due diligence report and structuring advise in respect of a US$300 million cross-border acquisition/ privatization in a state-owned Jordanian Bank.
- Dubai Holding in producing four separate legal due diligence reports with respect to acquisition transactions totaling close to US$200 million in Eastern investment group holding UK, International Energy Management Company, Jordan Airline Training and Simulation (JATS) and Jordanian Flight and Catering Services Company (Subsidiary of Alpha Co. -UK);
- Kuwait National Bank in producing a due diligence report with respect to acquisition transaction in Bank Al Etihad in Jordan.
- National Holding, in several international procurement and sale of goods contracts and trade between countries that involved contract drafting and other banking documentations such as letter of credits, bank guarantees and other documents for shipping and handling of goods based on Incoterms Rules.
- Fincantieri as part of the in-house legal team, in closing a US$5.6 billion naval shipbuilding contract signed with the Qatari Navy in 2016.
- Fincantieri as part of the in-house legal team, in the negotiation of US$ multi-billion procurement contracts, to equip and arm newly ordered warships, with suppliers such as Airbus, Raytheon, MBDA, Rolls-Royce, Thales and Leonardo.
- Eagle Hills, a leading real estate developer, in several hotels operation agreements with Marriott Inc to license the operation of several (5) stars hotels and resorts in the Middle East region including St. Regis Hotel and residences, W Hotel & Residences and Westin Hotel.
- Engie, a French multinational power company, to structure the set- up and finance of a 150 MW solar power project in Jordan.
- Fincantieri, in closing a complex “Engineering, Procurement and Construction” contract for a military shipyard in the UAE and related joint venture contract for the management and operation.
- Fincantieri in a US$250 million refitting contracts of naval units (ISS, FOS, ILS) with several naval forces in the Middle East.
- National Holding, in several international procurement and sale of goods contracts and trade between countries that involved banking arrangements such as letter of credits, bank guarantees and other documents for shipping and handling goods.
- National Holding in the setup, design and construction of Greenfield cable factory in Algeria.
- Damac Properties in providing contract drafting to construction, consultancy, plot and unit SPA related to US$ multi-billion real estate projects in Dubai, Abu Dhabi, Jordan, Egypt, Lebanon, KSA and the UK based on FIDIC, NEC and bespoke forms of contract.
- Damac Properties as part of the inhouse legal team, in the negotiation of a US$ 250 million construction contract with Arabtec Holding to construct Damac’s 90 floors tower (Ocean Heights in Dubai Marina) in Dubai, UAE.
What are the principal pros and cons of forming a federal corporation in Canada?
Pros
Incorporation under the Canada Business Corporations Act, R.S.C. 1985, c. C-44 (CBCA) provides the following advantages:
- A CBCA corporation can carry on business as of right across Canada. This includes the right to enter and carry-on business in any Canadian province or territory under its corporate name (section 15(2), CBCA).
- CBCA incorporation provides a common legal platform known throughout Canada (with the greatest recognition internationally).
- The CBCA includes a highly flexible statutory arrangement provision (section 192, CBCA).
- The CBCA no longer contains financial assistance restrictions (whether related-party or share purchase).
About 50% of the largest 200 non-financial corporations in Canada are incorporated under the CBCA.
Cons
Incorporation under the CBCA has the following disadvantages:
- At least 25% of the directors must be resident Canadians (section 105(3), CBCA). A higher proportion applies in some industries (section 105(3.1), CBCA).
- A CBCA corporation does not qualify for flow-through treatment under the US Internal Revenue Code.
- The CBCA prohibits a:
- Subsidiary from acquiring shares in its parent corporation.
- Parent corporation from allowing its subsidiary to hold shares in the parent.
- Unless it obtains an exemption from the Director under section 151(1) of the CBCA, a CBCA corporation must solicit proxies if it has more than 50 registered shareholders even if it is not a reporting issuer.
What are the principal pros and cons of forming a corporation in Ontario?
Pros
Incorporation under the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 (OBCA) provides the following advantages:
- It is generally easier to clear a corporate name under the OBCA than under the Canada Business Corporations Act, R.S.C. 1985, c. C-44 (CBCA).
- OBCA incorporation avoids the additional cost of filing an annual return under the CBCA (although the annual return may be filed electronically under the CBCA for only $20 a year).
- A CBCA corporation must solicit proxies where it has more than 50 registered shareholders (while an OBCA non-offering corporation is not required to solicit proxies regardless of the number of registered shareholders).
- Professional corporations for lawyers, paralegals, public accountants, medical doctors, dentists, veterinarians and social workers practicing in Ontario are only available under the OBCA.
- The OBCA no longer contains financial assistance restrictions (whether related-party or share purchase).
Cons
Incorporation under the OBCA has the following disadvantages:
- Incorporation under the OBCA offers little name protection within, and no name protection outside, Ontario.
- The incorporation fee for articles of incorporation filed electronically under the OBCA is $300 (compared with $200 to file electronically under the CBCA).
- Like a CBCA corporation, an OBCA corporation does not qualify for flow-through treatment under the US Internal Revenue Code. Only Alberta, British Columbia and Nova Scotia have types of unlimited liability corporations that qualify.
- At least 25% of the members of the board of directors must be resident Canadian as defined in the OBCA (section 118(3), OBCA), which is also the minimum requirement under the CBCA but not under the laws of the territories and several sister provinces including British Columbia, New Brunswick, Nova Scotia and Québec).
- Except in rare circumstances, the OBCA prohibits:
- a subsidiary from acquiring shares in its parent corporation; or
- a parent corporation from allowing a subsidiary to hold its shares.
Are there any limits on the classes or series of shares that can be issued?
Corporations cannot generally impose restrictions on the issue of shares of any class or series, unless the restrictions are authorized by its articles. However, a unanimous shareholder agreement may impose controls on the issue of shares
Shares of series of the same class must participate ratably in respect of the payment of arrears of cumulative dividends, declared non-cumulative dividends and return of capital on dissolution or liquidation, if these claims are not paid in full (section 25(2) and (3), Business Corporations Act, R.S.O. 1990, c. B.16). Any other restrictions on a class or series of shares must be set out in the articles or a unanimous shareholder agreement.
What Happens When a Business Needs Money?
March 3, 2021
Khaled El Fauri
Establishing a strong foundation for your business is just the beginning of your entrepreneurial journey. At Fauri Law, our Business Formation services provide the groundwork needed to launch your startup into the market...