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.