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Corporate and Commercial

What is registered office and how do you change your registered office?

What is registered office and how do you change your registered office? 150 150 Jiang Hong Wilkin Business Law

The OBCA and CBCA both require a designation of registered office when a company is incorporated. A registered office is the address provided to the government for official communication. The registered office is also the place where the minute book of the company is to be kept, and the place for service if the company is involved in court proceedings. Therefore a registered office must be a physical office capable of receiving document delivery, and cannot be a postal box. A company’s registered office is often the company’s primary place of business (such as store location, factory location or office), or the company’s lawyer’s office. Private residence can be used as a registered office for a company, but be aware this address is in public records. A registered office can be changed. For an Ontario company, changing registered office within a municipality (for example, both old and new addresses are in Toronto) only requires a board resolution. However, chanting a registered office across municipalities (for example, changing from Toronto to Markham) will require a special resolution of shareholders. Once the registered office is changed, the company must report to the Ontario government within 15 days by filing a Form 1. For CBCA companies, a change of registered office within a province only requires the filing of Form 4 within 15 days of change. If the change of registered address is across provinces, then a special resolution of shareholders will be required and the company’s articles will need to be amended.

What documents must I have when lending money to a company?

What documents must I have when lending money to a company? 150 150 Jiang Hong Wilkin Business Law

Instead of investing in shares of a company, you can also invest in a loan to the company. Loans and shares are fundamentally different (please reference Legal Small Talk #30). A loan investment must have loan documents. At the very minimum there must be a promissory note. Only a note can prove that the money is for a loan, rather than a share purchase or a gift. The promissory note should include who the lender is, who the borrower is, the principal amount, the interest rate, the loan start date and the maturity date. If the borrow did not pay back the money, the lender with a promissory note can sue the borrower in court and will likely win the case swiftly. It is difficult to file a lawsuit without at least a promissory note. In addition, if the borrower is a company, the loan has to be approved by its board of directors. Accordingly, the board resolution approving the loan is needed. These two are the most basic loan documents.

What is the difference between secured loan and unsecured loan

What is the difference between secured loan and unsecured loan 150 150 Jiang Hong Wilkin Business Law

There are two kinds of loans: secured loans and unsecured loans. In a secured loan, the borrower pledges its assets as collateral/security for the loan. If the borrower cannot pay back the loan, the lender can take over the assets. A bank mortgage is a typical secured loan. The real property is the pledged asset. If the borrower does not pay back the loan, the bank can sell the real property to get the money back. There is no secured asset for an unsecured loan. If the borrower cannot pay back the loan, the lender can force the borrower into bankruptcy. Even in a bankruptcy proceeding, the secured assets cannot be touched. Only a secured party is entitled to deal with the secured assets. In addition, the money owed to the government (such as HST, source deduction on employees’ salary, etc.) has to be paid first. The unsecured creditors can be paid if there are still remaining assets. Therefore, the unsecured loan is more risky than a secured loan, and the interest rate of an unsecured loan is typically higher than a secured loan.

Can investor ask the company to pay investor’s legal fees?

Can investor ask the company to pay investor’s legal fees? 150 150 Jiang Hong Wilkin Business Law

In Canada, an investor needs to retain a lawyer to review legal documents, conduct due diligence, close the transaction, etc. Who will pay the investor’s legal fees? If the investment funds go to a company, the company will pay lawyer’s fees in most cases. Especially if the investor is a finance business and the investment is a loan, the borrower will pay the lender’s legal fees. If the money is paid to shareholders, rather than to the company (the investor buys the issued shares from the existing shareholders), the investor’s legal fees are usually paid by the investor. Even if the company agrees to pay the investor’s legal fees, the company typically worries if the investor’s legal fees would become high. The company, therefore, will normally require a cap for investor’s legal fees. How much the cap is depends on the negotiation. The arrangement on legal fees should be included in the letter of intent. Some investors want to save money and do not retain lawyers before signing the letter of intent. But these investors do not know the common practice in Canada on legal fees. Accordingly, all legal fees are borne by investors themselves.

Can a child sign a contract?

Can a child sign a contract? 150 150 Jiang Hong Wilkin Business Law

In Canada, whether or not the contract is valid depends on several factors. One of them is that all the signing parties must have legal capacity to sign the contract. For individuals, the signor must reach the age of majority (18 years in Ontario), and have no metal capacity issues. Accordingly, the contract will have a validity issue if a child or a person lacking mental competence signs the contract. For companies, the company must exist and not be in a bankruptcy proceeding. The company which is bankrupt has no capacity to enter into a contract. Some people ask if they can buy real estate under their children’s names. If the child is still a minor, the contract signed by the child is invalid. If any lawyer says that the contract signed by a child is valid, please ask the lawyer to provide a legal opinion, then the lawyer will take responsibility if there is dispute in the future.

Can I have a contract that is not legally binding?

Can I have a contract that is not legally binding? 150 150 Jiang Hong Wilkin Business Law

People naturally want their contracts to become effective when signing them. But some contracts are the initial negotiation results, such as letter of intent (LOI), memorandum of understanding (MOU) and term sheet. There will be formal contracts after LOI, MOU and term sheet have been signed. Are the initial documents binding on the parties? They may and may not. It depends on what the parties need and how the document has been drafted. Usually, the terms regarding the transaction, such as price, payment terms, closing conditions, etc., should be included in the formal contract; and these terms are often not binding. Other terms, such as confidentiality, expenses, due diligence, no shop, etc. would be binding. Signing initial documents is just like an engagement. Once you find the right one, engage first. Whether or not the marriage will occur will depend on whether the conditions are satisfied. Closing a transaction is like getting married.

Can I get out of a contract by not doing what I agree to do?

Can I get out of a contract by not doing what I agree to do? 150 150 Jiang Hong Wilkin Business Law

After signing the purchase agreement for a business or estate, the seller does not want to sell the business or the real property. If there are conditions which need to be met by the seller and the seller does not satisfy them, then the conditions are not met, and the contract cannot be performed? This is a common breach in the real estate transactions. After the purchase agreement has been signed, the price goes up. Thereafter, the seller does not want to perform the purchase agreement. For example, the agreement requires the seller to apply for a renovation permit. The seller does not apply. The seller thinks that the condition is not met, the agreement therefore cannot be performed. It is unreasonable in law. The seller cannot avoid legal liabilities using his own breach. If the seller fails to perform the contract, the buyer can sue the seller and will win in the most cases. The court may order the seller to apply for the renovation permit and close the transaction of the real property. The court may order that the seller compensate the buyer for the losses caused by seller’s breach. The losses may include the extra money which the buyer may pay to buy a similar real property, the accommodation cost (hotel or rent) before moving to the new house, lawyer’s fees, etc. If you decide to breach an agreement, you should know the liabilities first.

If my company is not allowed to assign a contract, can I sell shares of my company instead?

If my company is not allowed to assign a contract, can I sell shares of my company instead? 150 150 Jiang Hong Wilkin Business Law

Many contracts have a clause restricting assignment. For example, in a lease contract, the landlord prohibits the tenant transferring the lease to a third party without consent of the landlord. Another example, in a service contract, the services cannot be taken over by a third-party service provider. These are the common terms. The house is to be leased to you. The services need to be provided by you. What if the tenant or the service provider transfers its own shares to a third party? The tenant or the service provider is still the party of the lease/service contract. The clause restricting assignment does not apply under this situation. If there is a clause in the lease or service contract restricting the change of control of the tenant or the service provider and requiring the tenant/service provider to obtain landlord’s/client’s consent for any change of control, then this loophole will be plugged.

Are you buying the Real Estate or the Business?

Are you buying the Real Estate or the Business? 150 150 Jiang Hong Wilkin Business Law

Some investors think that buying a business means buying real estate, and they are using the OREA real estate purchase agreement. For example, a company is selling assets in a bankruptcy auction, and the draft agreement states the sale is for real estate only. This company is a nursing home, and the senior residents are still living there. If it is only a transaction for real estate, the company would need to relocate all the senior residents and an empty property will need to be left to the buyer on closing. If the buyer would like to continue the nursing home business, they need to buy all the assets from the seller. All the assets, such as senior residents’ services agreements, employees’ agreements, suppliers’ agreements, license, trademark, real estate, equipment, etc., should be transferred to the buyer. This is a full asset acquisition. Real estate is only a part of a full asset acquisition. Therefore, an asset purchase agreement will be needed. The investor should make sure what they want when buying a business.

Should buyer and seller use the same lawyer?

Should buyer and seller use the same lawyer? 150 150 Jiang Hong Wilkin Business Law

The interests of both parties in a transaction are in conflict. A lawyer cannot represent both parties. A lawyer serves his/her client and protects his/her client’s interests. If there is a conflict of interest, a lawyer cannot protect both parties’ interests. What is a conflict of interest? It is where you win and I lose, or your gain and my loss. For example, in a purchase transaction, the seller wants the selling price as high as possible, but the buyer wants the selling prices as low as possible; the seller wants the representations in the contract as little as possible, but the buyer would like the seller to make more representations. Therefore, the interests of the seller and the buyer are in conflict. If they retain the same lawyer, it will be easy to have problems. The conflict of interest will be more complicated if there are multiple parties in a transaction. For example, a company is negotiating with its lender to enforce the mortgage. My client is the guarantor. The interests of the borrower and the lender are in conflict (the lender would like to have the loan paid back as much as possible; but the borrower wants the payback as little as possible). If the borrower’s lawyer think that interests of the borrower and the guarantor are in conflict. It may not be correct. The interests of borrower and the guarantor are the same regarding the pay-off of the mortgage (they both would like to pay as little as possible). There is therefore no conflict of interest at this point. If the guarantor requires the borrower to compensate the paid-off amount, there will be a conflict of interest between them at that time.

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