Hiring Soon – Estates & Business Lawyer

My associate of two years, Adam Veroni, is leaving Intrepid Law to pursue his next adventure. His departure creates an opening for an intrepid junior lawyer to build their own practice from the ground up, with a head start from the firm.

I’m a small business lawyer who advises socially, environmentally, and ethically responsible entrepreneurs. I don’t work with, or for people who don’t share those values. Most of my practice is contract, business, and employment law. I don’t go to court, or deal with IP, estates, trusts, or tax. I’ve built, and am building, my practice so that I can work from anywhere in the world with a cell phone tower or an internet connection. You can too.

The gap in my practice is in wills, estates, and trusts. That’s where you come in.

So who are you? Well, my guess is that you’re:

  • A 2015-2018 call
  • Smart
  • Dreaming of building your own practice
  • Wanting and willing to learn about business and the workings of your own practice, not just law
  • Socially adept
  • Someone who knows trust law well, and has a weird fascination with wills & estates
  • Able to draft solid trust documents
  • A little conversant in tax
  • Disillusioned with the meat-grinder environment in law firms you’ve experienced
  • A non-believer in the 9-5
  • Not a fan of dress codes
  • In downtown Toronto
  • Not afraid to take risks
  • Diligent
  • Involved in things that don’t involve law or lawyers
  • Genuinely interested in using your privilege and skills to make the world a better place
  • Actively working to maintain your physical and mental health

Here’s how it’ll work.

  • You’ll work from wherever, and set your own hours
  • You’ll be paid $1,000/month salary, plus 2/3 of what you bill on your clients, and 1/3 of what you bill on my clients
  • You’ll set your own fees for your clients
  • You’ll design your own business cards, which I’ll pay for as long as they’re not lame
  • We’ll work together on transactions, with me doing the more complex business law work, and you doing the basic business law work, and the trusts/estates pieces
  • I’ll send you my basic corporate, contract, and employment work, so you can learn the fundamentals of business law
  • I’ll refer most new client inquiries to you to jump-start your book of business
  • I’ll connect you with other lawyers and professionals in my network who can funnel wills, estates, and trusts work to you
  • You’ll build your own client relationships, referral network, and personal brand
  • You can build your practice however you like and you’re strongly encouraged to write, take on side-projects, do pro bono work, and volunteer
  • I’ll mentor the shit out of you

This job is not for everyone. The learning curve in starting your own practice is steep. I spent more time on business development than legal work during the first 2 1/2 years of my practice, and the first three years I was one bad month away from bankruptcy. You’ll have it a bit easier, in that you will have a small salary and a mentor to show you the ropes in the practice and business of law. I will have work for you, and will guide and encourage you, but the whole nose-grindstone relationship is up to you.

Looking for an early June start date.

 

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Commercial leases: renewal, or extension of term?

Most commercial leases have some sort of clause where the tenant can continue to occupy the space. These clauses can be:

  1. an extension of term – which continues the original lease, with a few terms changed; or
  2. a renewal – which ends the original lease, and creates a whole new one.

The consequences of this legal sorcery can be far reaching. My associate, Adam Veroni, handles much of the commercial leasing work at Intrepid Law. He’s written an article explaining the differences, and suggesting a few ways to approach negotiations with your landlord.

Option to Renew in a Commercial Lease

… An option to renew is not necessarily a simple add-in to a lease, and if not drafted correctly, can end up in costly disputes. There are three issues, in particular, that should be ironed out before a lease is signed:

  1. how the rent will be determined for a renewal period;
  2. whether the option to “renew” should be an option for an “extension of term” (the difference will be discussed below); and
  3. what other terms of the original lease are to carry forward in the new lease.

Read the full article here:
http://adamveronilawblog.wordpress.com/2017/12/07/the-option-to-renew-in-a-commercial-lease-issues-and-pitfalls/

What’s a holding company?

Quoth the late, great Notorious B.I.G., “I don’t know what, they want from me / It’s like the more money we come across / The more problems we see.” As an entrepreneur with a thriving business, Biggie waxed poetic on the ever-increasing difficulty of managing one’s affairs as the size and scope of one’s operation increases.

The DIY entrepreneurial spirit and flying-by-the-seat-of-your-pantsness of running a small business will only get you so far. Nobody ever really explains to you that the mo’ better you do at running your business, the mo’ difficult it gets to figure it out on your own. If you’re lucky (and good), the problems you never knew you had won’t come back to bite you… or if they do, hopefully not too hard. Obviously it’s impossible to negate all of the risk of your business, but what you can control is how much damage it will do.

One of the most important tools in your damage control toolbox comes from the shockingly unsexy world of corporate restructuring. It sounds fancy, but it’s really just another example of lawyer and accountant dweebs trying to make what we do sound impressive. Corporate restructuring means assembling a series of business entities and contracts to limit how much of your businesses’ money and assets are exposed to creditors.

Creditors are anyone your business owes money to. They can be anyone from an unpaid supplier, to a jilted landlord, to a former employee, to someone who wins a lawsuit against your business. The potential liabilities – or the amount of money you could owe creditors if things go bad – can be hefty. Say you’re opening a second location for your business. Your corporation signs a 5 year lease with a landlord for $3,000.00 per month. That’s $36,000.00 per year in rent. If the second location goes out of business after 1 year, you could still be on the hook for $144,000.00 in unpaid rent. The landlord can go after your surviving location to pay the debts from the failed one. That would suck.

A well planned and implemented corporate restructuring can protect the assets of one part of your business from the risks of another. At the heart of this lawyerly magic is something called a “holding company” – or a HoldCo.

What is a Holding Company?

A HoldCo is a corporation that doesn’t do anything other than own shares of other corporations. It’s a corporate shareholder, and nothing else. It’s called a holding company because it “holds” the shares, and it also holds on to & invests the profits that come along with those shares.

A corporation that actually does business (making/selling goods, providing services, etc) is known as an “operating company” – or an OpCo – when it’s owned by a HoldCo. A HoldCo can own all or part of one, or many OpCos, or even other HoldCos.

Profits are paid from the OpCo to the HoldCo by a dividend, which is a payout of the after-tax profits of a corporation to its owners. In Canada, dividends paid by an OpCo to a HoldCo that owns its shares are generally not taxed. This means that instead of holding a bunch of cash in your OpCo, you can hold it in the HoldCo instead, without paying more tax on it.

Why would I do that???

It may seem goofy to move the cash out of your business – after all, you may need it again. The problem is that any cash in the business is an asset that can be used to pay your creditors. Once cash is moved to the HoldCo, it no longer belongs to the OpCo. Obviously you can’t use this to hide money from creditors you already have or know about – that would be fraud, and also a dick move – but if you do it in the ordinary course of business, it’s allowed. It’s called “creditor proofing”. The OpCo only hangs on to the money it needs to run the company, and the rest is paid by dividend to your HoldCo.

Secondly, if you’ve got multiple businesses, or multiple locations of the same business, the HoldCo makes it really easy to move money between the two without paying more taxes. Since corporate tax rates are generally lower than personal tax rates, using dividends from one OpCo to fund another OpCo, rather than investing your personal after-tax income means you have more to invest.

You can also keep money in the HoldCo indefinitely, or pay yourself slowly over time to keep your personal taxes to a minimum.

Ooh, clever! How do I do it?

Every business is different, and should be set up in a way that’s designed just for it. There is no silver bullet answer. There are two approaches that I see the most often in small businesses which I’ll use as examples:

HoldCo Graphic 1

Advantages:

Simple, compared to Option 2. This means that it’s cheaper to set up and run.

It separates the assets and liabilities of each separate business, or each location or division of your business. If OpCo2 gets sued by its landlord for $144,000.00, the landlord can’t go after OpCo1 or the HoldCo for payment, because they’re separate businesses.

As we know, the excess profits of each OpCo can be paid to the HoldCo as a tax-free dividend. So, if one OpCo is doing well, and the other isn’t, the HoldCo can lend the money to the struggling company, which can be paid back later tax-free. If you didn’t have the HoldCo, you’d pay tax on the dividends you get from the OpCo, and have only what’s left to loan to the struggling OpCo.

Disadvantages:

Money. For a small business, the legal and accounting work to set it up can range from thousands to tens of thousands of dollars. It costs more to run it too – each corporation needs its own bank account, tax numbers, bookkeeping, tax return, legal work, and insurance policies, to name a few.

Also, the assets of each OpCo stay in the business, and within reach of its creditors. For businesses with lots of equipment or inventory, that could be a whole lot of value left exposed.

Typical Uses

This structure is most common in businesses where there aren’t a lot of hard assets – like services businesses – or in real estate investing, where the property is the business, and can’t be effectively separated.

HoldCo Graphic 2

Advantages

Here, OpCo1 and OpCo2 are the true operating businesses. They take on all of the business liabilities – like hiring the employees, making the products, taking customer orders, signing contracts, and so forth – but don’t actually own the valuable assets. OpCo3 owns all of the valuable assets – equipment, machinery, and sometimes inventory – and rents them to OpCo1 and OpCo2 to use.

Since OpCo3 doesn’t deal with anyone other than 1 & 2, and OpCo1 & 2 are the only ones dealing with the outside world, the valuable assets are generally out of reach of the creditors of the business. Creditors can go after the profits of 1 & 2, but they have no legal relationship with OpCo3, so have no claim against its assets.

Otherwise, it works pretty much the same way as Option 1.

Disadvantages

Again, the expense is a factor. More companies means more startup and ongoing costs.

Also, you run the risk that the money being paid from OpCo 1 & 2 to OpCo 3 for the use of the assets could be called passive income by the CRA – and taxed at a much higher rate than ordinary corporate income. This is where a good accountant earns their keep.

In some highly regulated businesses, the terms of licenses, permits, or government authorizations may prevent you from using this structure at all.

Typical Uses

This is most common where there is a lot of expensive equipment, or a great deal of inventory in the business – like resource extraction, manufacturing, transportation, or construction. A similar model can also be used by a business with multiple locations, but centralized management.

Common Failures

If you’re going to do this stuff, you’d better not half-ass it. The process of setting it all up and running it, though it may seem like overly technical, tedious legal mumbo-jumbo, is absolutely critical. This is the type of stuff that the CRA will look at in detail if you’re ever audited. Even worse than that is the possibility that you may think your assets are protected when they’re not.

There are huge benefits – tax, asset protection, and your peace of mind as a business owner foremost among them – to using these structures. If you’re going to have access to those benefits, the CRA and courts of law will require you to have done everything correctly.

A few critical factors are:

  • The paperwork must be done. Without the right legal documents and tax reporting as evidence of the intent, timing, and effect of the restructuring. You can’t pretend that you’re operating separate businesses and hope they’ll go along with it.
  • OpCos Actually Op as Separate Cos. Again, you can’t fake it. Each corporation needs its own accounts, employees, contracts… everything. If anything – employees, equipment, intellectual property, invoicing, etc – is shared between the businesses, you’ve got to have contracts in place as evidence of the separation. Any overlap between the corporations could be enough to allow a judge to ignore the structure you’ve put in place, and rule that they’re actually all just one related business.
  • HoldCo Must Not Do Business. Your HoldCo must do nothing other than own shares and be owed debt by the OpCo. If it does any active business, all of its assets – meaning all of the companies it owns – will be available to its creditors. This includes participating in the management of an OpCo through a unanimous shareholders’ agreement.
  • Solvency. If your business doesn’t have enough money to pay its expenses as they come due, then it’s illegal to restructure it unless it’s part of insolvency proceedings.
  • Current Creditors. Similarly, none of this can be used to escape creditors that you already know about – or ones you ought to know about. That’s fraud.

While it’s not rocket surgery, it’s certainly not something I recommend as a DIY project. If you’ve got a business with multiple locations, different divisions doing different things, or own pieces of a few different businesses, there’s no time like the present to square this away. If you need help along the way, I happen to know a guy…

 

Mike Hook
Intrepid Lawyer
mike@intrepidlaw.ca
@MikeHookLaw

Contingency Planning for Small Business

Owning your own business is kind of like giving birth to a needy child. It will fill your days with all manner of excitement, some good, some bad. There also comes a time when you need to start considering what happens to the child if and when you’re not around to take care of it anymore. What happens if you get sick? What if you kick the bucket? What if personal or family problems prevent you from running the business day to day? How the hell are you ever going to retire? None of those things, save perhaps retirement, are pleasant brunch conversation, but they must be had. They’re the first step in making contingency plans. Without such plans, the well-being of your family, employees, and company may be left in limbo – legally, financially, and business-wise. Contingency plans are certainly not decisions that should be made hastily, nor should they be made alone.

This is the first in a series of three articles I’ll be writing on the topic of contingency planning for your small business. This first one will be a general overview of who and what steps are involved in the process. The next two will touch on:

  1. Business continuation planning – if you become sick or incapacitated unexpectedly, and
  2. Business succession planning – how to retire and get the value you grew in the business out of the business.

Goals

Each business owner will have a different view of what they want out of “retired” life, but there are a few overarching goals that should be built into any succession plan:

  1. to make a smooth transition to a successor;
  2. to see the business in good hands going forward; and
  3. to have financial security in retirement or during illness or incapacity.

Timeline

When I say not to make the decision hastily, I mean it. There are a bunch of hard decisions that you’ll need to make. Your decisions will affect the people you care about the most – friends, family, employees, collaborators, customers/clients, suppliers, and so on.

For business continuation planning, give yourself a couple of months to put the plan together. This will give you time to have those tough discussions, get meaningful feedback and advice, gather the appropriate information, and get all the paperwork done. You want to ensure that the plan you’ve made is feasible, and will work even if the worst case scenario happens. You may also have to start training your staff to do what you do, which can take considerable time as well.

For business succession, allow several months to make the plan, and at least 3-5 years to ease the plan into effect. All of the same steps for business continuation planning apply here, but with a different end-game. So, if you’re a baby boomer who’s looking to make a slow, graceful exit from the business, the time to start planning is now…

Who’s involved?

It’s one thing to decide who you want to carry the flag for you, and another thing altogether for them to want to pick it up and run with it. There are two rounds of consultation to do – one with those affected by the plan, the other with the advisers that will help you piece it together.

In the first round of talks, you’re trying to figure out who’s willing and able to take over the business. At the end of the day, it’s up to you and your co-owners to choose, but I pity the fool who tries to pass their affairs on to someone who doesn’t care to take over, or doesn’t have the ability to run the business effectively. The folks you should talk to include:

  • Family members – particularly your spouse, children, and others who could be beneficiaries in your will
  • Business partners/co-owners/other shareholders
  • Friends with an interest in the business
  • Managers and senior employees
  • Major creditors

After those talks, you should have a pretty good idea of who’s willing to take over, what knowledge gaps need to be filled to get them ready to do your job should you not be able to. Then it’s up to you and your co-owners to choose who will take over, and when.

Once you’ve got a plan, it’s time to figure out how to put it into action. This is where your advisers earn their keep. You should talk to your:

  • Tax planning accountant**
  • Lawyer
  • Insurance agent
  • Banker, and
  • Major creditors

I put two of these bad boys – ** – next to the tax planning accountant for a reason. Many small businesses have an accountant who does their books and prepares tax returns each year. This accountant may be great, but they’re not necessarily a tax planning expert. A CA who focuses on tax planning can help you to get your money out of the business with minimal taxes. Your accountant will take the lead in planning how it’s to be done, your lawyer will do the grunt work to set up all of the structures, and your insurance agent will help you figure out how it’ll all get paid for.

The People Factor

As you well know by now, a successful business is only as good as the people who run it. If your business is doing well enough to prompt you to make contingency plans, then it’s also doing well enough for you to start grooming your employees to take more responsibility in it. When the employees are running a bigger piece of the company, you’re able to phase out gradually. This means training them to do what you do, allowing them to make mistakes and correct them, and developing their leadership skills. This learning curve may take years, so start doing it right away.

There’s a saying in the army that “no plan survives first contact with the enemy”, meaning that every plan looks great on paper, but things rarely ever go according to plan. It’s wise to build contingencies into your contingencies. Pick more than one worthy successor, or have more than one option. That way if your #1 choice jumps at a different opportunity, falls ill, or turns out not to have the leadership skills needed to take the business forward, you’re not up a fecal watercourse with no means of mechanical locomotion.

Conclusion

This was a very brief overview of the contingency planning process. In the next article, which you can find here, I’ll dive a little deeper into business continuation planning, and some of the legal stuff that’s involved in it.

If you’re looking for a more in-depth discussion of contingency planning, the Canadian Federation of Independent Business has an excellent guide up for free. The Government of Canada has published a quick online guide, and most banks and insurance companies have similar publications.

See you again soon!

Mike Hook
Intrepid Lawyer
http://intrepidlaw.ca
@MikeHookLaw

New Anti-Spam Law and your Small Business

For almost every small business, Canada’s new anti-spam law will be a game changer. Unfortunately the changed game will be tedious and more expensive for most of you. It started out as a law to stop people and companies from spamming Canadians with unwanted messages. The way the law turned out, however, is using a hand grenade to get a squirrel out of your bird feeder. It will have a huge impact on the way your company can do its business online.

ImageThe law covers almost any electronic messages you send for business purposes – including email, text messages, and direct messages on social media, but not phone or fax. The basic premise of the law is that businesses must get the recipient’s consent before sending business messages to them. Simple enough, right?

The rest of the law is a rats-nest of exceptions, conditions, and legal grey areas. This blog will map out said rats-nest, without taking too much of the magic out of what I do. Practically speaking, your two main concerns are getting consent to send messages to the recipient, and having the right content in the message itself. That’s what this blog will focus on.

The penalties for businesses that ignore or break this law can reach up to $10,000,000, so it’s kind of a big deal. It’s also an offence to aid someone in breaking this law – so social media marketers, IT, and CRM dudes, beware!

The law will come into effect in three phases:

  • Most parts of the law will be in force on July 1, 2014
  • Parts dealing with the unsolicited installation of computer programs – January 15, 2015
  • Right for individuals to sue for damages caused by spammers – July 1, 2017

In this blog, I’m only going to talk about the parts of the law that come into force this year.

 

 1. Consent

The recipient must actively and voluntarily give consent to you sending them business messages. This consent can be express or implied – which I’ll tackle below. You don’t need consent:

  • from friends and family
  • from employees, representatives, consultants or franchisees of your organization
  • from foreign recipients – though your message must comply with that jurisdiction’s anti-spam laws
  • if you’re
    • answering an inquiry, request, or complaint
    • giving notice of a legal right or obligation
    • giving them factual information about an ongoing relationship like a subscription, membership, or loan
    • providing information about an employment relationship or benefit plan that they’re in
    • delivering updates or upgrades
    • a charity or political party
  • if the message is solely an inquiry about the products or services the recipient provides

 Express Consent

This is when the recipient takes a positive action to approve of you sending them business messages. Once given, express consent remains valid until withdrawn. More on withdrawal below. The guts of express consent are:

  • The message or form asking for consent must:
    • explain why you’re asking for consent
    • give the name of the organization or person seeking consent (or identify who you’re getting consent for, if it’s not you)
    • give valid contact information – including at least one non-electronic means
    • let them know they can unsubscribe at any time
  • If consent was expressly given before this new law, you don’t have to go back and re-confirm
  • The recipient must “opt in” (as in, checking a box), rather than opt out (unchecking a box), or the consent isn’t valid
  • Keep a record of who consented, when, and how – as it’s up to you to show that you got it, not the other way around

 Implied Consent

This is a little trickier, as most types of implied consent have an expiry date. Express consent is more practical for you to get, because it doesn’t expire, and is easier for you to keep track of. That said, if your contacts aren’t big on clicking through links in email, implied consent may still cover you. Implied consent can be found:

  • in an existing business relationship, meaning that you and the recipient have
    • in the past two years,
      • bought, sold, or leased goods, services or land from each other
      • were bound by a written contract with each other
      • bartered goods, services or land with each other, or
    • in the past six months, made an inquiry about doing any of the above
  • an existing non-business relationship
  • if the recipient has published or disclosed their email address, they have not stated that they don’t wish to receive unsolicited messages, and the message is relevant to their business or role

 

2. Content

So once you’ve got consent from all of your adoring fans, and you’re dutifully keeping accurate records of who has consented, your work is still not done. From July 1, 2014 onwards, every business message you send must have certain content, except messages

  • to recipients you have a personal or family relationship with, or
  • which are an inquiry about the business products or services the recipient provides

All of your business messages must contain information that:

  • identifies the sender, or on whose behalf it’s sent
  • sets out contact information for the sender, including at least one non-electronic means
  • has a way to unsubscribe or withdraw consent

The unsubscribe mechanism must:

  • operate at no cost to the recipient
  • allow the recipient to unsubscribe by the same means the message was sent, or give another electronic means to unsubscribe
  • give a link to a webpage that allows them to unsubscribe

Once they unsubscribe, you’ve got 10 business days to take their name off the list, or else.

 

3. Conclusion

Like I said, game changer… though how it changes the game will differ from business to business. There are a few best practices that I’d recommend you start implementing now:

  • Vet your contact lists now to determine who you will need consent from
  • Before July 1, 2014, send a message to your existing mailing lists asking them to opt in, and create a new mailing list of those who do
  • After July 1, 2014, you’ll have to get consent the old fashioned way – by mail, phone, or other non-electronic means
  • Keep records of information showing consent
  • Put together a new email signature that meets the content requirements
  • Build an “unsubscribe” link into your website, and make sure the unsubscribe mechanism works

Most IT service providers should be CASL-compliant by now, and companies like my friends at Response Magic have developed simple and thorough systems to help you colour within the lines. Of course, every business and every situation is different, and applying a general rule is no substitution for consultation with an intrepid lawyer. You know where to reach me if you’ve got questions.

There. I just saved you $10,000,000. You can thank me later.

 

 

Mike Hook
Intrepid Lawyer
http://intrepidlaw.ca
@MikeHookLaw

Crowdfunding in Ontario

On May 8, 2014, I presented a webinar for http://www.SmallBusinessSolver.com on the legal ins and outs of crowdfunding in Ontario.

Crowdfunding is a game changer for small business finance. Between $3-5 billion has been raised in crowdfunding efforts worldwide, through over 300 portals. 45 of those portals are available to Canadians. Traditional crowdfunding works by donation or reward.

The latest and greatest is that crowdfunding will soon be available in Ontario to sell equity to the general public. This is going to make selling equity less expensive and simpler to do.

Enjoy!