Starting a business

Expertises connexes

The choice of legal structure for a business is a complex issue to deal with at the start of a new business venture. There are various ways of structuring a business, each with different characteristics. It is important to plan and evaluate this choice carefully.

The incorporation (i.e. the creation of a company) surely presents many advantages. First, it allows the creation of a legal entity separate from its directors. The separate legal personality of the company is particularly advantageous to protect from civil liability and for tax planning (income splitting by shareholders with their family members, advantageous tax rates, etc.).

In addition, the sources of funding available to a company are more flexible and diversified. The company may, subject to certain conditions, issue shares and bonds.

The name of the company should be selected with care. The name can be reserved in advance, but in order to avoid choosing a name already used in the market, a prior research must be done.

For the purpose of incorporation, the founders must choose under which company act, whether the Quebec Business Corporations Act (QBCA, provincial) or the Canada Business Corporations Act (CBCA, federal), they wish to incorporate their company. The articles of constitution of the company must also be prepared. The articles will need to indicate:

• the name and home address of each founder;
• the name of the company (as well as the translation of the name in other languages, if applicable) or the numerical designation;
• the details of the share capital (including restrictions on transfer);
• the restrictions on activities;
• the number of directors (fixed or flexible); and
• other provisions.

In addition, the by-laws should complete the articles of constitution. We can suggest different approaches for the content of customized by-laws, which can include the following:

• general provisions (definition, interpretation, mission of the company, etc.);
• requirements on the meetings of shareholders and of the board of directors (eligibility, composition, conduct of meetings, resignation process, powers and duties, remuneration);
• guidance about the officers of the company (president, vice-president, secretary-treasurer, etc.); and
• other provision.

In addition to the above, it may be wise to put in place shareholder agreements, discussed in details in a separate section.

In turn, the franchising follows a similar process. However, the opening of “daughter companies” requires a lot of coordination between the “parent” company and the new franchisees who act under the same banner.

This complex process generally requires the drafting of complex franchising agreements to protect and enforce the rights, obligations, duties and powers of the franchisor and the franchisee.

Finally, concession and franchising contracts are materially similar. The main difference being that in the case of a concession contract, the economic link is more focused around a specific product rather than on the business entity as a whole. The franchisee must use, to a certain extent, the economic and business model imposed by its franchisor, while the concession, often has more latitude and is akin to a distributor of a specific product. Car dealerships are an example of a concession contract.