Business & Corporate Lawyers

80% of all worldwide businesses are family-owned and/or controlled, contributing upwards of 50% of global Gross Domestic Product. Despite its massive size, there is little focus in the market on the unique needs and issues that arise in these businesses.

Family Enterprise Specialists focus on the unique needs and skills of your family and family-oriented business — helping maximize the benefits and strengths of your business while ensuring your legacy lasts for generations to come. Through our experience, we understand the specific personalities, skills, and concerns that remain unique to family businesses, and have the resources and heart to deal with those concerns while ensuring that any transitions run as smoothly as possible.

How We Can Help: As supporters of family enterprise, we aim to secure your family and business by helping develop your commercial vision, your personal and corporate wills, your family’s economic future, your personal and commercial investments, and smooth transition management — all while providing ongoing professional counsel and maintaining key relationships.

Hummingbird Lawyers is a one-stop-shop for all your commercial and personal needs, using all our resources and cross-practice connections to ensure stable, quality growth both with your business and your commercial relations.

Family Enterprise Multi-Disciplinary Services:

• Tax and estate planning
• Will planning (personal and corporate)
• Shareholders’ agreements
• Employment agreements
• Family business succession planning

Contact Hummingbird Lawyers at 905.731.1911 for questions about Family Enterprise.

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A business without a clear vision and framework is doomed to fail. Shareholders agreements form an important foundation of any company — providing a legal substructure for financial and functional decisions while establishing obligations and control of the parties involved.

Types of Shareholders Agreements:

• General Shareholders Agreement — treated as a commercial contract between the parties, custom-tailored to meet the needs of the parties involved
• Unanimous Shareholders Agreement — requires all shareholders to sign and can restrict the powers of the directors, placing certain decisions in the hands of shareholders collectively

Key Areas a Shareholders Agreement Addresses:

Management & Governance — board nomination rights, observer rights, veto rights over major decisions (amending articles, approving the budget, issuing shares, replacing the CEO), meeting quorums, and approval thresholds to protect minority shareholders.

Terms & Restrictions on Selling Interests:

• Right of First Refusal — existing shareholders must be offered shares before third parties
• Pre-Emptive Rights — shareholders can maintain their ownership percentage and avoid dilution
• Mandatory Share Sales — corporation can repurchase shares upon a founder’s death, insolvency, disability, or marital breakdown
• Drag-Along Rights — majority shareholders can compel minority shareholders to join a third party sale
• Shotgun Clause — a shareholder offers to buy out the other or be bought out at a stated price; typically used when relationships break down
• Put/Call Options — a dispute mechanism between majority and minority shareholders

Non-Compete & Non-Disclosure Obligations — protecting the business and all parties from competitive harm during and after the shareholder relationship.

Contact Hummingbird Lawyers to have your shareholders agreement drafted or reviewed.

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While no government statutes require a shareholders agreement, it can be extremely crucial to have one in place when there is more than one shareholder in a corporation. The main purpose is to prepare for future events and contingencies that are common in business ownership.

Making big decisions after a working relationship has collapsed can result in emotionally-driven, imbalanced power struggles. Establishing these rules while the relationship is functioning is much easier — and far less costly — than trying to do so when the relationship is damaged or beyond repair.

Key Issues to Address When Drafting:

Management Issues:

• Filling vacancies on the board
• Issuing and transferring shares
• Declaration of dividends
• Meetings of directors
• Hiring and firing of key employees
• Enactment of by-laws

Shareholder Issues:

• Election of directors
• Voting on major decisions (by-laws, dissolution, sale of corporate assets)
• Meetings of shareholders
• Pledging of shares
• Dividends and payouts

Two common drafting approaches exist — preserving the status quo between majority and minority shareholders, or attaining certain pre-agreed objectives. In most cases, a combination of both is the most effective measure.

Contact Hummingbird Lawyers to have your shareholders agreement properly drafted.

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Through many aspects, business formation impacts how your business will function, operate, and be taxed. Creating a legal structure behind your endeavour is one of the crucial first steps you can make when starting any business. With each unique business venture, there is a structure that best matches the entrepreneur’s plans for determining the liability of each founder, what taxes to anticipate, and how they will be paid.

Business Formation Types:

Sole Proprietorship — As a sole proprietor, you and the business may be considered one and the same — meaning you are fully responsible for all debts and obligations pertaining to your business. Any profits are entirely yours, but any creditor can make a claim against both business and personal assets to collect debts. If your business is sued, your personal assets are also at risk. If operating under a business name, you will need to register it.

Partnership — A partnership is a non-incorporated business created in collaboration with two or more people, combining financial resources and sharing profits. There are several types:

• General Partnership — each partner is equally liable for all debts
• Limited Partnership — a person contributes to the business but is not involved in day-to-day operations
• Limited Liability Partnership — typically afforded to groups of professionals such as lawyers, accountants, or medical professionals

While a partnership agreement is not legally required, it is highly recommended to address future disputes and disruptions such as the death of a partner.

Corporation — Incorporation can be done at either the federal or provincial/territorial level. When incorporated, the business becomes a legal entity separate from its shareholders. This separation limits personal liability — creditors can generally only make claims against the corporation itself, not the personal assets of shareholders.

Co-operative — A co-operative is a business owned and democratically controlled by its members, who share in the benefits of the enterprise. Co-operatives are governed by their own bylaws and applicable provincial legislation.

Before choosing a business structure, seek legal guidance to understand the rights, obligations, and nuances of each option.

Contact Hummingbird Lawyers to discuss the best business structure for your venture.

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Dissolution is the ending of a corporation after it ceases to carry on business. It can be done either voluntarily — authorized by voting shareholders — or involuntarily, initiated by court order when a corporation is wound up.

Liabilities of Shareholders on Dissolution: When a corporation dissolves, its shareholders are generally not liable for the debts of the corporation. However, exceptions include:

• If the corporation cannot pay its liabilities because it reduced its stated capital to minimize shareholder liabilities, those shareholders may be liable to the corporation for the full amount of those payments
• Shareholders party to a unanimous shareholders agreement may be jointly and severally liable to the corporation’s employees for all debts up to six months’ wages and up to twelve months’ vacation pay
• Shareholders may be liable for outstanding debts owed to creditors, to the extent of the property they received on dissolution
• A shareholder may be personally liable for the corporation’s debts if they are a personal guarantor for those debts

Liabilities of Directors on Dissolution: Directors are responsible for exercising care, diligence, and skill when making decisions on behalf of the corporation. Failure to do so may result in personal liability. Examples include:

• Directors may be jointly and severally liable to employees for all debts up to six months’ wages and up to twelve months’ vacation pay
• Directors may be personally liable if the corporation failed to remit source deductions such as employee income taxes, employment insurance, and CPP contributions
• Directors may be personally liable where the corporation failed to remit HST/GST collected on behalf of the CRA

How Can Shareholders and Directors Limit Their Liability? Properly structured shareholders agreements, director resignation before dissolution, and timely compliance with statutory obligations are all key tools for limiting personal exposure. Seeking legal counsel before dissolving a corporation is strongly recommended.

Contact Hummingbird Lawyers for guidance on dissolution and related liabilities.

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