Canadian Legal Guide for Small Business

Acknowledgements xv Introduction 1 Part I: Ways of Carrying On a Small Business 9 1 Sole Proprietorship 11 a. Setting Up a Sole Proprietorship 11 b. Advantages and Disadvantages 12 1. Advantages 12 2. Disadvantages 13 c. Is a Sole Proprietorship Right for You? 14 d. Summary 14 2 Partnership 15 a. General Partnership 16 1. Setting Up a General Partnership 16 2. Advantages and Disadvantages 18 3. Is a General Partnership Right for You? 20 b. Limited Partnership 20 1. Setting Up a Limited Partnership 20 iii Contents iv Canadian Legal Guide for Small Business 2. Advantages and Disadvantages 21 3. Is a Limited Partnership Right for You? 22 c. Summary 23 3 Corporation 31 a. Setting Up a Corporation 32 1. Incorporation 32 2. Organization 34 3. Maintenance 41 b. Advantages and Disadvantages 41 1. Advantages 41 2. Disadvantages 42 c. Is Incorporation Right for You? 43 d. Summary 44 Part II: Start-Up Issues 51 4 Choosing a Business Name 53 a. What Is the Purpose of a Business Name? 53 b. The Business Form 54 1. Sole Proprietorship 54 2. Partnership 55 3. Corporation 56 c. Changing Your Name 58 d. Summary 59 5 Licenses and Permits 61 a. Licenses and Permits: What Are They? 61 b. What Is the Purpose of a License or Permit? 62 c. What Kinds of Licenses and Permits Do You Need? 62 d. How Do You Obtain the Necessary Licenses and Permits? 63 e. Summary 64 6 Financing Your Small Business 65 a. Why Do You Need Financing? 65 b. Equity Financing 65 1. Sources of Equity Financing 66 Contents v 2. Types of Equity Financing Arrangements Available 67 3. Securities Legislation 69 4. Summary 70 c. Debt Financing 71 1. Sources of Debt Financing 71 2. Types of Loans Available 72 3. Loan Security 76 4. Summary 82 d. Government 82 e. What Kind of Financing Is Right for Me? 83 7 Insurance 85 a. What Types of Insurance Will You Need? 85 b. What Types of Insurance Are Available? 85 1. Property Insurance 86 2. Business Interruption Insurance 86 3. General Liability Insurance 86 4. Key-Person Insurance 86 5. Directors and Officers Liability Insurance 87 6. Product Liability Insurance 87 7. Automobile Liability Insurance 87 8. Environmental Liability Insurance 87 9. Credit Insurance 88 c. How Do You Obtain the Insurance You Need? 88 d. What Can Nullify My Insurance Coverage? 88 e. Statutory Insurance 89 f. Summary 89 Part III: Ongoing Operations 91 8 Intellectual Property 93 a. Copyright 93 1. What Is a Copyright? 93 2. What Requirements Must You Meet to Claim Copyright in a Work? 93 3. What Kind of Works Can You Claim a Copyright In? 94 4. What Can You Not Claim a Copyright In? 94 5. How Long Does Copyright in a Work Last? 95 6. Must You Register Your Copyright? 95 7. Can You Transfer Your Copyright in a Work to Someone Else? 95 8. What Does It Mean to Infringe a Copyright? 95 9. Is There Anything Else You Should Know about Copyright? 96 b. Trademarks 97 1. What Is a Trademark? 97 2. What Requirements Must You Meet to Claim a Valid Trademark? 97 3. What Can You Not Use as a Trademark? 97 4. Must You Register Your Trademark? 98 5. How Do You Register Your Trademark? 98 6. How Long Does Your Trademark Last? 98 7. Can You Lose the Right to Your Trademark's Registration? 98 8. Can You Transfer Your Trademarks to Someone Else? 99 9. What Does It Mean to Infringe Trademark? 99 10. Is There Anything Else You Should Know About Trademarks? 99 c. Patents 99 1. What Is a Patent? 99 2. What Requirements Must You Meet to Patent Your Invention? 100 3. How Do You Obtain a Patent for Your Invention? 100 4. How Long Will Your Patent Last? 101 5. What Does It Mean to Infringe a Patent? 101 6. Can You Transfer Your Patent? 101 d. Other Intellectual Property 101 1. Industrial Designs 102 2. Integrated Circuit Topographies 102 3. New Varieties of Plants 102 4. Trade Secrets 102 e. Other Issues 103 1. Employees and Your Intellectual Property 103 2. Protecting Your Intellectual Property Abroad 103 f. Summary 103 vi Canadian Legal Guide for Small Business Contents vii 9 Privacy Obligations 109 a. Privacy Legislation in Canada 109 1. Background 109 2. The PIPEDA 110 3. Provincial and Territorial Legislation 110 4. Sanctions 110 b. Your Responsibilities 111 1. Accountability 112 2. Identifying the Purpose 113 3. Consent 114 4. Limiting Collection 114 5. Limiting Use, Disclosure and Retention 115 6. Accuracy 115 7. Safeguards 115 8. Openness 116 9. Individual access 116 10. Provide Recourse 117 c. Other Considerations 117 1. Employer/Employee Relationships 117 2. General Concerns 118 d. Summary 119 10 Contracts 125 a. What Is a Contract? 125 1. The Offer 125 2. Acceptance 126 3. Consideration 127 b. What Does a Contract Do? 128 1. Determines Your Rights and Obligations 128 2. Allocates Risk 128 3. Provides a Legal Basis for Restitution 128 c. Who May Enter into a Contract? 129 1. An Individual 129 2. A Business Entity 129 d. Whom Does a Contract Bind? 130 viii Canadian Legal Guide for Small Business e. When Are You Exempt from Your Contractural Obligations? 130 1. Frustration 130 2. Agreement/Termination 131 3. As a Result of a Breach 131 f. What Remedies Are Available to You If Another Party Breaches Your Contract? 132 1. Damages 132 2. Specific Performance 133 g. In What Circumstances Might You Not Be Able to Obtain a Remedy for a Breach of Contract? 134 1. Misrepresentation 134 2. Mistake 134 3. Unconscionability 135 h. What Do You Need to Know about Reading a Contract? 136 i. What Do You Need to Know about Writing a Contract? 137 1. Date 137 2. Parties 137 3. Background 138 4. Terms 138 5. Signature Lines 139 j. Summary 140 11 Dealing with Consumers 157 a. What Is a Consumer? 157 b. Product Liability 157 1. The Duty to Take Reasonable Care 158 2. The Duty to Warn about Dangers 158 3. Summary: The Basis of Liability 159 c. Packaging and Labelling 159 1. Federal Packaging and Labelling Requirements 159 2. Provincial Packaging and Labelling Requirements 161 3. Summary 161 d. Advertising 161 1. False or Misleading Advertising 162 2. Promotional Contests 163 3. Advertising Codes 165 Contents ix 4. Summary 166 e. Sale of Goods 166 1. What Is a Sales Contract? 166 2. The Obligation to Carry Out the Terms of the Contract 167 3. Implied Conditions 168 4. Breaching the Contract 170 5. Summary 172 f. Business Practices 172 g. Summary 173 12 Billing, Payment, and Collection 175 a. Billing 175 1. Communicating the Purchase Price 175 2. Setting the Payment Terms 176 3. Providing Estimates 176 b. Payment 177 1. Cash 177 2. Cheque 178 3. Bank Draft and Money Order 180 4. Traveller's Cheque 180 5. Credit Card 181 6. Debit Card 182 7. Summary 183 c. Collection 183 1. Receipts 183 2. Collection Problems 184 d. Summary 186 13 Employees 191 a. The Employer/Employee Relationship 191 1. What Is an Employee? 191 2. Employment Standards and Human Rights Legislation 192 b. Your Rights and Obligations When Hiring an Employee 193 1. Advertising for an Employee 193 2. The Application and Interview Process 193 3. Preliminary Considerations in Hiring an Employee 196 4. The Offer 196 c. Your Rights and Obligations during Employment 197 1. The Employer's Obligations to its Employees 197 2. The Employee's Obligations to the Employer 201 d. Your Rights and Obligations When Firing Employees 203 1. Termination without Cause 204 2. Termination for Cause 206 3. Wrongful Dismissal 207 4. Temporary Layoff 210 e. Independent Contractors 211 f. Summary 212 14 Resolving Disputes 225 a. What Is a Dispute? 225 b. Reducing the Likelihood of Being Involved in a Dispute 226 c. How Can You Resolve Your Disputes? 227 1. Resolving a Dispute Yourself 227 2. Taking the Dispute to Your Lawyer 228 3. Taking the Dispute to Court 229 d. Canada's Court System 229 1. Provincial and Territorial Court Systems 230 2. The Supreme Court of Canada 231 3. Federal Courts 232 4. Tax Court of Canada 232 e. Going to Court 232 1. Initiating a Lawsuit 232 2. Deciding Whom to Sue 232 3. Choosing the Court in Which to Bring Your Lawsuit 233 4. Preparing a Statement of Claim 234 5. Preparing a Statement of Defence 235 6. Pre-Trial Matters 236 7. Trial, Appeal, and Resolution 238 8. Enforcement of Order 239 x Canadian Legal Guide for Small Business Contents xi 9. Other Types of Hearings 240 f. Summary 243 15 Taxes 249 a. Our System of Taxation 249 b. Tax and the Sole Proprietor 250 c. Tax and Partnership 251 d. Tax and the Corporation 252 1. Corporation 252 2. Shareholders 254 e. GST 255 1. Register Your Business 256 2. Keep Records 256 3. Collect the GST 256 4. Calculate the GST You Owe (or Your Refund) 257 5. File Your GST Return 257 f. Retail Sales Tax 257 g. Summary 258 16 Professional Advisors 259 a. General Selection Criteria 259 1. Interest 259 2. Personality 260 3. Experience 261 b. Your Banker 261 c. Your Accountant 262 d. Your Lawyer 263 1. What Can a Lawyer Do for You? 263 2. When Should You Seek the Advice of a Lawyer? 264 3. What Should You Look for in Selecting a Lawyer? 264 4. What Should You Ask Your Lawyer? 266 5. Ethical and Professional Standards Governing Lawyers 267 6. What Should I Expect from a Lawyer? 268 e. Summary 268 Afterword: The Road to Success 271 xii Canadian Legal Guide for Small Business Checklists 1 Shareholders agreement checklist 38 2 Privacy legislation checklist 120 3 Privacy compliance checklist 121 4 Ten guidelines for drafting the perfect contract 153 5 Your day in court: Ten rules to follow in small claims court 246 6 Your lawyer... 269 Case Studies 1 Share structure 45 2 Share structure 48 Samples 1 Partnership agreement 24 2 Limited partnership structure 30 3 Promissory note 75 4 Assignment of copyright and waiver 104 5 Secrecy agreement 105 6 Privacy Policy 122 7 Amending agreement 145 8 Termination agreement in letter form 147 9 Contract 149 10 Bill of sale 187 11 Receipt 188 12 Demand letter 189 13 Application for employment 214 14 Interview questions/interview summary 216 15 Letter confirming employment 220 16 Dismissal letter 221 17 Independent contractor agreement 222 18 Statement of claim 244 19 Statement of defence 245