LAUNCHING YOUR STARTUP – Walk trough

October 13th, 2017

By Nicolas St-Sauveur, Lawyer

1- CHOOSE THE RIGHT NAME FOR YOUR STARTUP

Your name might be catchy, but that’s not enough. You must be the only one authorized to use it in your area of activity in your target market. Before using the name, check in particular with the Canadian Intellectual Property Office to make sure that you are not infringing on someone else’s trademark. You must conduct this kind of verification in every jurisdiction where you intend to carry on business. Moreover, if your startup is incorporated in Quebec, you will need a French version of any English-sounding name and will have to comply with the provisions of the Charter of the French Language on registering your name.

2- QUEBEC INC. OR CANADA INC.?

In Quebec, you have to decide between two legal systems when you incorporate. Some rules differ under the Canadian and Quebec systems. The head office of a provincially incorporated corporation must be located in Quebec, but it can be located anywhere in Canada if it is federally incorporated. In addition, in Quebec the governing documents are in French, while they are bilingual in Canada. Another major difference is that under the Quebec law, the board of directors may be comprised entirely of non-residents. If your startup is a federal corporation, the law requires that the board include a minimum number of Canadian residents.

3- UNDERSTAND WHAT IS MEANT BY A SHARE AND ISSUE SHARES WITHOUT INVOLUNTARILY ISSUING A PUBLIC OFFERING

Shareholders have three rights: the right to vote, the right to receive dividends, and the right to receive the remaining property if the corporation liquidates or dissolves. Such rights may attach to one class of share or be distributed over several classes according to different conditions, which is why it is important to describe the capital in the articles of incorporation. Without this description, you will not be able to issue shares from a separate class to specific shareholders, for example, non-voting shares. If you issue new shares or sell previously issued shares, make sure that the new shareholder is in a category of person that falls within an exemption so that your startup does not have to file a prospectus with the Autorité des marchés financiers.

4- PROTECT YOURSELF WHEN YOU “MARRY” CO-SHAREHOLDERS

The leading source of failure for startups is disputes between the founders. Many future disputes can be avoided with a shareholders’ agreement, or by providing for dispute resolution mechanisms. In the absence of a shareholders’ agreement, your co-founder could sell his shares to a competitor without your consent. If he dies, his spouse could become your co-shareholder. And when you die, your co-shareholders will be under no obligation to buy your shares. Your estate could therefore end up with your shares without any way of forcing their sale and receiving their value. Any shareholders’ agreement should be drawn up by experienced professionals.

5- ACQUIRE THE INTELLECTUAL PROPERTY IN MATERIAL PRODUCED EXTERNALLY

You do not automatically own the intellectual property in the works created when you hire a self-employed worker to design your logo or your web site. To transfer ownership, the parties must sign a written assignment of copyright. Make sure any employee who might develop any element of your company’s intellectual property also signs such an agreement. Moreover, before you reveal your inventions to anyone, including potential investors, make sure that they have signed a confidentiality agreement.

6- CONSULTANTS OR EMPLOYEES: YOU CHOOSE Deal with real consultants, not disguised employees, or hire your employees according to the rules. If you hire a self-employed worker in order to save on payroll taxes, and the tax authorities end up qualifying the worker as an employee, you might have to pay all the payroll taxes that you should have paid over the years. Do not underestimate the responsibilities involved when you hire an employee.

7- DEVELOP TERMS OF USE FOR YOUR WEB SITE

It is important to develop terms of use for your web site. Any conditions of sale must comply with the Consumer Protection Act (Quebec) if you offer goods and services to consumers. If users can upload material, the terms of use should protect you against any eventual action regarding your use of the material. Finally, the terms of use often determine the governing law and jurisdiction in the event of litigation between your startup and its clients regarding an online contract.

8- THINK ABOUT CYBERSECURITY

Develop a confidentiality policy to protect any personal information collected from clients or employees. Put in place technological means to protect such information from computer hackers, and prepare a plan on how to respond in the event of a breach.

9- EXPAND YOUR LIST OF CONTACTS WITHOUT VIOLATING THE ANTI-SPAM LEGISLATION

Anti-spam legislation came into force in 2014. The law covers almost any electronic message whose purpose is to encourage participation in a commercial activity, such as the purchase of goods or services. Therefore, you need to understand how and to whom you may send electronic messages when the recipient did not agreed to receive them, for example, by subscribing directly online to your newsletter. It is nonetheless prohibited to send an electronic message to obtain such consent. The recipients of these emails must, in particular, be able to identify you and be able to unsubscribe from your messages.

10- MAKE SURE YOUR FIRST SALES OR SERVICE CONTRACT IS WELL DRAFTED

If you deal directly with consumers, your contracts must comply with the provisions of the Consumer Protection Act (Quebec). If you deal with other businesses, your contracts could benefit from standard clauses on reservation of ownership, forfeiture of the term, interest, putting in default by operation of law, governing law and jurisdiction, limitation of liability, confidentiality, and non-solicitation.