As lawyers we are often approached by clients who are hoping to grow and expand their business in one way or another. Among the first things we ask is to obtain a copy of the articles of incorporation, by-laws and any other relevant documents of the client’s company. These documents give us an idea of the rights and obligations of the directors, officers and shareholders of the corporation and determine how we move forward in addressing the client’s objectives. Occasionally however, when we ask to see a company’s minute book, what we are provided with is little more than the government incorporation form with the bare minimum information filled-in. This approach is perfectly legal, as all individuals have a right to incorporate in Canada and the regulators only ask for certain basic information to do so. But by failing to take the proper steps upon incorporation to organize and structure a company, business owners are doing themselves a huge disservice. The following are some of the key reasons why it pays to hire a lawyer to incorporate your company:
- Organization. Incorporation provides business owners with a blank slate upon which to structure their company and to determine how it will be governed. But without determining these rules at the outset it will not be clear to the directors, shareholders or anyone doing business with the company whether the actions the company is taking are properly authorized and legally valid.
- Flexibility.A skilled lawyer, when incorporating a company will consider a business owner’s short-term and long-term goals, and will account for them upon incorporation. A common example is where a business owner wants to someday pay out some of the company’s profits to shareholders (subject to the various tax rules) without giving them any decision-making power. A lawyer will plan for this, allowing the corporation to make those payments and potentially issue separate classes of shares. Without making the proper preparations however, business owners will incur a considerable amount of expense and effort each time they want to make such a change and they may also have to seek shareholder approvals which may not be possible when the time comes.
- Optics. Potential customers or business partners will be much less likely to consider doing business with a company that hasn’t been properly organized, as it suggests a lack of professionalism in the company’s approach and provides little certainty that anything the company does is valid and legally binding.
- Avoiding Disputes. Much of what lawyers do is focused around helping their clients to identify and avoid risk, and incorporation is no exception. By setting out in writing how a company is governed, who has what rights, and who can make decisions on the company’s behalf, lawyers help stakeholders within a corporation avoid disputes, and more effectively settle disputes when they arise.
- Filings and Deadlines. Practically speaking, one of the most important reasons for using a lawyer to organize and maintain your business is to ensure you never miss an annual filing, deadline or fall behind on your annual corporate governance requirements. These tasks require minimal investment by the business owner but without attending to them, the corporation could face severe penalties and even dissolution.
Business lawyers provide peace of mind. They give business owners the comfort of knowing that all of the legal issues relevant to a particular situation have been considered and addressed. Incorporating a new corporation online may seem very easy, particularly since with only a few clicks you will be a sent a Certificate of Incorporation. But without considering all of the relevant issues, going into business without proper organization could stifle your company’s growth, jeopardize its credibility and reputation and even lead to significant costs down the road.
This article is for informational purposes only and does not constitute legal advice. If you wish to discuss your issue with a lawyer, contact Hugues today. 613-747-2459 ext.304, [email protected]