Incorporating a Company - I. What We Need To Know - II. Shareholder Agreements
The following information will be needed to begin the incorporation process. You may wish to cut and paste this into an editable document, or into an email to send us to assist in setting up your new Corporation.
Please contact us for pricing information.
I. PRE-INCORPORATION DATA TO ASSIST IN INCORPORATION (ALBERTA BUSINESS CORPORATION)
Basic Incorporation Information
1. Name, address, phone numbers of the following:
Shareholder(s):
Director(s):
Officers (at least a President and Secretary, can also be Vice President(s), Treasurer, etc.):
2. Address where records of Corporation will be kept (administrative office):
3. Registered Office (where legal notices are sent to corporation, usually our office, can be other, there are annual fees that apply):
4. Number and Class of Shares to be issued to Shareholders (check with accountant/tax advisor):
5. Issue price for each issued Share (check with accountant/tax advisor):
6. Name of Bank where company will have bank account:
7. Name of Accountant/Tax Advisor (we cannot provide taxation or accounting advice):
8. Fiscal year end of company (check with accountant/tax advisor):
9. Proposed Name of Company (if not using a numbered company). Name must end in “Limited”, “Ltd.”, “Incorporated”, “Inc.”, “Corporation”, “Corp.” (a search will be done to see if available):
10. Determine whether a Shareholder Agreement is needed. See the following Shareholder Agreement Information for information on what this applies to:
II. GENERAL INFORMATION ON SHAREHOLDERS' AGREEMENTS
Whenever a Corporation has more than a single Shareholder, it is recommended that an agreement be entered into to regulate important matters among the Corporation and its Shareholders. The Business Corporations Act (Alberta) permits the parties to enter into what is known as an "Unanimous Shareholder Agreement", which is commonly referred to as a "USA".
As the name suggests, this Agreement is among all the Shareholders of the Corporation, and the Corporation itself. A USA is intended to address the key management issues that may arise among Shareholders, and establishes the respective rights and obligations of the Shareholders. The major areas are restriction on issuance and transfer of Shares, rights of first refusal, forced transfers on occurrence of certain events, buy out on death of a Shareholder, compulsory buy out of one Shareholder by another ("shot-gun clause"), appointment and removal of Directors and Officers, regulation of business or the Corporation, and confidentiality, non-competition and non-solicitation. A USA should be drafted considering any special circumstances which may be applicable to your business and personal circumstances. The following as a summary of what issues are commonly addressed in a USA.
Control of Shares and Partners
At a basic level, one general objective of a USA is to allow the Shareholders some level of control over who their "partners" will be in the business as time goes on, and what proportion of ownership parties will maintain. A person's Shares in a private corporation are personal property, not unlike other personal assets. As such, absent any agreement to the contrary, they are freely transferable, and can be sold, mortgaged, and pass through a person's Will on the death of the person (or under provincial law if there is no Will). Accordingly, absent some control mechanism, one Shareholder has little or no control over who may become his or her partner in a business, for example, on the death of another Shareholder. Likewise, other events, such as insolvency of a Shareholder, can see his or her Shares seized by creditors, or matrimonial proceedings may result in a spouse acquiring an interest in the Corporation. Other problems arise on a Shareholder becoming mentally incompetent. A USA also implies certain obligations on Shareholders and other parties with access to Corporate information to maintain its confidentiality, both during and after a party ceases to be involved the business. It may also have provisions restricting a party from competing with the business of the Corporation during and after a party ceases to be involved the business. Finally, a USA normally contains restrictions on the ability of the Corporation to issue new Shares, which may result in undesirable dilution of a minority Shareholder's interest, or introduction of a new Shareholder against the wishes of the minority.
Organization and Management
A second general objective of a USA is to outline the rules of organization and management of the Corporation's business, such as appointment and replacement of Directors and officers, what matters require the Directors to consult the Shareholders before acting, and what proportions of Shareholders' votes are required for certain actions to proceed.
Cash Requirements ("Cash Calls") and Distribution of Profits
A third general purpose of a USA is to manage how funds are to be contributed by the parties in the future if required, what requirements are to be met for the Corporation to incur debt, what obligations the Shareholders may have to provide personal guarantees of the Corporation's debt, and how profits are to be retained or disbursed.
Basic Matters to be considered for inclusion in a Shareholders’ Agreement
A USA may address any or all of the following:
1. Restrictions on Share transfer or other disposal -- prevents someone from selling Shares to a third party, or pledging to a bank, etc;
2. Restrictions on Share issuance B may restrict Directors’ ability to issue additional Shares, for example by requiring consent of all (or specified minimum percentage of) Shareholders prior to issuing new Shares, whether to existing Shareholders or new subscribers;
3. Rights of First Refusal -- if someone want to sell, they must first offer to existing Shareholders prior to selling to a third party;
4. Drag Along/Tag Along -- if a certain percentage of Shareholders desires to sell their Shares to a third party, they may require the minority to sell on the same terms ("Drag Along" rights). If a party receives an offer from a third party to purchase the shareholder's interest, the other Shareholders can require the offeree to obtain an offer from the third party for their interests on the same terms ("Tag Along" rights), or can prevent the sale. There may also be provisions governing the conditions on which the Shareholders can decide to take the Corporation public;
5. Buy out provisions ("shotgun" clause) -- that is, should there be provisions under which one or more Shareholders can force another to sell his or her interest, or buy that person's interest?;
6. Buy out on death or disability or insolvency -- what happens to a Shareholder’s Shares (and any loans that may be due him from the Corporation) when he dies, to prevent the deceased's Shares from being inherited under a Will or intestacy? There can be life insurance on the Shareholders, so that Corporation or surviving Shareholders get insurance funds, buys Shares from estate on death, or there may be a simple contractual right to have interests bought out from the estate, or survivors may simply elect to have the Shares pass on to heirs under the deceased’s Will. Other concerns arise upon mental incapacity or insolvency of a Shareholder, or institution of matrimonial property claims by a spouse of a Shareholder;
7. Management of Business, Right to appoint Directors and Officers -- may regulate how long term or short term business decision are made, dictate what proportions of Shareholdings are required to take particular actions;
8. Requirements of Shareholders to Contribute Time -- Is there an expectation or requirement of one or more Shareholders to commit time and expertise in the operation of the business, or be employed by the Corporation as employee, or contractor? What if the person does not continue to perform? If there is such a requirement, a separate employment/contractor agreement may be appropriate;
9. Financial Matters – How are funds to be put into the business by the owners? Is there a mechanism by which a certain percentage of voting Shareholders can “cash call” the others in order to finance the business from time to time? What is the effect of one or more Shareholders failure to comply? When and how are funds to be distributed from the business to the Shareholders? Can Shareholders be required to provide personal guarantees for debts of the Corporation to lenders? Is there a right of any Shareholder who provides a guarantee of Corporation obligations who has to pay to claim a proportionate share from other Shareholders?;
10. Confidentiality, Non-Competition and Non-Solicitation -- requires a party to maintain in confidence the important records and property of the business, during and after a party ceases to be involved the business. May also contain provisions preventing a party from assisting a competing business during and after a party ceases to be involved the business and/or prevent the solicitation of customers and/or key employees of the business;
11. There may be other special issues applicable to a particular business.
The material provided in this document is meant for informational purposes only, and is not provided as legal advice.