Business Venture Blog
This is where we post about business, ventures, law, and business venture law.
Anything interesting, really.
Anything interesting, really.
Business Venture Blog
Mezzanine Debt Agreements – A Primer for Borrowers
At many points in the life of a start-up venture, owners will have to choose between different financing options to sustain and grow their business. Subordinated or “mezzanine” debt is a popular financing vehicle for Canadian high growth companies in their earliest stages. There are many complexities to mezzanine debt that distinguish it from the typical bank loan and which prospective borrowers should consider when making their financing decisions.
What is Mezzanine Debt?
Mezzanine debt is a loan with components that give it some of the characteristics of holding equity. With both debt- and equity-like features, mezzanine debt occupies a middle ground between senior debt (i.e. secured bank loans) and common shares in terms of risks and rewards. This is especially evident when a borrower defaults on their agreement – lenders of mezzanine debt have lower priority than senior lenders in their claims against a company’s assets when that company becomes insolvent. As such, mezzanine debt is usually (but not always) unsecured, meaning that lenders are dependent on the company’s cash flows as a going concern to protect their principal.
What Gives Mezzanine Debt It’s “Equity” Feature?
The equity component is attached to the loan agreement in two ways:
The main legal differences between the two are that in an agreement with a conversion option, using the option will cause the debt to disappear, along with all the rights and obligations of the loan. Exercising warrants will not have this effect. Conversion options also cannot be separated from the agreement. Warrants can be separated and sold off to another party. Outside of these differences, the two components are economically equivalent.
How Much Does Mezzanine Debt Cost?
Mezzanine debt usually charges a higher interest rate than senior debt (usually 12%-15% per year). Lenders may also charge a variety of fees on top of that interest, including setup fees, monitoring fees, late payment fees, prepayment fees, and so on.
Lenders are legally required to disclose the annualized nominal interest rate on their loans. For example, if lender charges 1% interest per month, the lender must indicate this as 12% interest per year. However, this number does not include three things that affect the cost of borrowing:
Including these items would increase the total cost of borrowing as a percentage of the principal balance (for legal purposes known as the effective interest rate). Especially with mezzanine debt, the difference between the reported interest rate and total cost of borrowing can be significant.
Mezzanine debt often includes penalty interest to encourage borrowers to make payments on time. Penalty interest is also not included in the nominal interest rate. If the loan is secured by real property, then the lender cannot increase the interest rate even in default. In this case, the borrower may see that fees are charged instead of additional interest when in default, though it is unclear whether this would qualify as interest.
It is illegal under criminal law for lenders to charge interest greater than 60% per year on the amount advanced. Criminal law considers interest to include all applicable fees as mentioned above. Prepayments also increase the interest rate as it lowers the amount advanced on which the interest charged is calculated, increasing the percentage as a result. The combined effects of additional fees, prepayments, and the already high interest rates can make the effective interest rate greater than 60%. Because of this, lenders will often include “black-out periods” in their agreements where prepayments cannot be made for a few weeks, especially after the loan is given or after fees are charged.
What Terms Do Mezzanine Debt Agreements Have?
Mezzanine debt agreements often include provisions that the loan will be subordinate to any future senior debt agreement, so undertaking mezzanine debt would not preclude a borrower from seeking secured bank loan down the road.
If a borrower already has a mezzanine loan and later secures a senior loan from a bank, the bank may require the borrower and mezzanine lender to sign an inter-lender agreement. This protects the bank by ensuring that it has first charge all the borrower’s assets (except for assets secured by the mezzanine lender, if any). It may also set terms as to:
Lenders will sometimes take security in a mezzanine debt agreement. Unlike senior loans, collateral often includes assets like intellectual property, share pledges, and life insurance proceeds. Intellectual property can include trade secrets, patents, copyrighted works, and trademarks.
Due to the risk mezzanine lenders face in providing unsecured loans (or taking intellectual property or other assets with uncertain value as collateral), lenders tend to avoid forcing a borrower into bankruptcy in the case of default. Instead, they may convert their debt into common shares and provide additional financing. This gives the lender additional control over the business while sustaining it as a going concern.
 Bryce C Tingle, Start-up and Growth Companies in Canada: A Guide to Legal and Business Practice, 3rd ed (Canada: LexisNexis Canada) at 386.
 Ibid at 383.
 Interest Act, RSC 1985, c I-15, s 4.
 Ibid at s 8.
 Supra note 1 at 390.
 Criminal Code, RSC 1985, c C-46, s 347.
 Supra note 1 at 392.
 Ibid at 407.
 Ibid at 426.
Managing the Effects of High Power Incentives on the Behavior of Entrepreneurs
At the age of 24, American entrepreneur, Ryan Blair sold his first company (SkyPipeline) for twenty-five million dollars. Since he owned 25% of the company, Blair anticipated a big payout from the sale. To Blair’s unfortunate surprise, he learned that he was not projected make any money from it. Blair was enraged when he learned this was not a mistake but a consequence of the venture capital contracts he signed, specifically the anti-dilution and liquidation provisions they contained. In response, Blair threatened to tarnish the company’s reputation and withhold his vote to approve the transaction (his vote was required for the sale to proceed under California law). Following Blair’s outburst, the company’s board of directors agreed to distribute some of the sale’s profits to Blair however, the amount they agreed to was still low relative to his equity ownership in the company. This scenario illustrates how many entrepreneurs react to the application of high-power incentives.
Investors impose high power incentives to transfer considerable risk to from themselves to a start-up’s founders and management (which I collectively refer to as “executives”).Two particularly onerous high-power incentives are full anti-dilution rights and multiple liquidation preferences (similar to those in Blair’s venture capital contracts). Inexperienced entrepreneurs like 24 year-old Blair, often do not appreciate the effects they can have until their application is triggered. Thus, despite initially agreeing to these provisions, executives often feel they were treated unfairly by investors when the effects of high-power incentives take place. As a result, disgruntled entrepreneurs retaliate and engage in strategic behaviors to deliberately harm the company which may harm a start-up.
The behaviors of executives are significant to a start-up success and this is recognized by venture capitalists, many of whom attribute the failures (of portfolio companies) they observe to shortcomings in senior management and founders. However, despite the negative effects that high-power incentives can have, they are still commonplace in venture capital contracts. Since venture capitalists still request these terms, I provide suggestions to supplement anti-dilution terms and liquidation preference or otherwise to mitigate their negative effects. I begin by describing each term and the interests they signify.
Anti-dilution rights are triggered when securities are issued at a price lower than the investor’s conversion price. The most dilutive variation of this term is a full anti-dilution right, which adjust the investor’s conversion price to the absolute lowest price at which subsequent stock is issued. This provision enables the preferred stockholder to obtain enough shares to maintain their original equity position in the company by disproportionately diluting common shareholders or other investors who do not invest on a pro-rata basis.
(b) Multiple liquidation preferences
Preferred shareholders receive some money on liquidation of the company before anything is paid out to other shareholders. Liquidation preferences may be triggered on a company’s bankruptcy or wind-up. A multiple liquidation preference provides the investor with a right to receive between one-and-a-half and three times the liquidation price (the original purchase price plus any accrued and unpaid dividends).
2. Interests Underling the Provisions
A venture capitalist’s main method of mitigating the risk of their investment is the valuation of an investee company. However, as venture capitalists often recognize that entrepreneurial over-optimism can result in an exaggerated valuation of the company. Full anti-dilution rights and multiple liquidation preferences are triggered in unanticipated, non-ideal circumstances. Effectively, these terms provide the investor with “downside” protection, mitigating the risks of their investments. With this in mind, I conclude this post by outlining some ways to circumvent the perverse implications of these provisions while satisfying the interests of an investor who may request them.
(2) Staging investments: this reduces the amount of capital at risk at any given time and enables the venture capitalist to get more information about the business and management of a corporation before hazarding the full amount of anticipated investments.
2. Managing expectations
The strategic and retaliatory behavior I noted is closely correlated with deviations from the executives original expectations. If either an anti-dilution right or liquidation preference must be used, a start-up’s executives fully should understand their implications along with the real possibility that they will take effect, from the outset.
3. Considerations to limit the severity of anti-dilution rights:
(1) capping the dilution produced by them (for instance, at the point at which it becomes clear that management would have no meaningful stake in the business);
(2) adding a sunset clause so that this right is only effective for a limited time following the investment;
(3) making the right affected by the company’s achievement of certain milestones which themselves ameliorate the risks faced by an investor (i.e. Producing commercial product, generating certain gross revenue etc.), in these circumstances, the anti-dilution right can be affected by altering the formula used to adjust the conversion ratio or even by getting rid of the right all together; and
(4) rather than adjusting the conversion provision to the lowest price given to a subsequent purchaser, consider substituting for a weighted averaging “narrow-based” or “broad-based” formula.
(a) “broad-based” formula: gives the venture capitalist a conversion ratio that reflects a per share price equal to the weighted average purchase price of all subsequently issued and outstanding shares. 
(b) “narrow-based” formula: only takes into account the pricing of the shares being adjusted (usually just the venture capitalist’s preferred shares), along with all subsequently issued shares.
4. Considerations to limit the severity of multiple liquidation preferences:
(1) capping the returns on preferred shares so that if the company is a modest success, venture capitalists do better by converting preferred shares to common shares than they would by relying on the operation of their liquidation preference; or
(2) a viable compromise might be that the preference operates only against the start-up’s executives. This will leave the investments of other common stock holders (like the executives’ families and friends), proportionally intact.
(3) Liquidation preferences should not:
 Kim Orlesy, “The Difference Between Success and Wisdom With Ryan Blair” (2016), online https://www.kimorlesky.com/blog/author/kim-orlesky
 Ryan Blair, “Nothing to Lose, Everything to Gain: How I Went from Gang Member to Multimillionaire Entrepreneur” Portfolio/Penguin (2013).
 M. Gorman and W. A. Sahlman, “What Do Venture Capitalists Do?” (1989) 4 J. Bus Venturing 231 at 238.
 Well Kenton, “Anti-Dilution Provision” Investopedia (2019), online: <https://www.investopedia.com/terms/a/anti-dilutionprovision.asp>
 Bryce C. Tingle, Start-up and Growth Companies in Canada: A Guide to Legal and Business Practices, 3rd ed (Canada: LexisNexis Canada Inc, 2018) at p. 416.
 Deepak Malhotra, “How to Negotiate with VCs” (2013) Harvard Business Review, online: <https://hbr.org/2013/05/how-to-negotiate-with-vcs>
 Supra note 5 at p. 419.
 Ibid at p. 357.
 Ibid at p. 364.
5 Legal Considerations for Starting a Business in Canada
Are you looking to start your own business? Since the peak of the COVID-19 outbreak in March, over 150,000 Canadian small businesses have turned to e-commerce to support themselves during the pandemic. However, starting your own thing is not as simple as picking a catchy name and letting everyone know you are open for business. There are some legal decisions you will need to make before you start earning revenue. So, before you begin choosing your website’s colour scheme, consider the types of agreements and which legal structure is right for your business to ensure your start-up gets off on the right foot.
1. Business StructureThe first decision you will need to make is how your business will be structured. Will you operate as a sole proprietor, a partnership, or will your company be a corporation?
A sole proprietor puts everything on your shoulders. In this business structure, you and the company will exist as one, and you will need to register and obtain a business license to get started. There are benefits of structuring it this way as there are low setup costs and you have complete control, but it comes with unlimited liability meaning that all of your assets, personal or otherwise, are linked to the business.
Entrepreneurs should also be wary that they do not find themselves inadvertently in a partnership. This can arise automatically when two or more persons are working in common with a view to profit. In a partnership, each individual is jointly and severally liable for all debts against the partnership as a whole irrespective of whether the debt was incurred by the business or one of the individual partners. In essence, it may be in an entrepreneur’s interest to consider if they are comfortable with the structure of a partnership and the amount of risk that partners expose themselves to.
If you want to be separate from your business as a legal entity, you will want to structure it as a corporation. This provides limited liability to you and any shareholders associated with the company and your liability is limited to the extent of your investment. It also is the preferred structure if you want to raise capital, which might be needed as this option is more costly and heavily regulated.
2. Term SheetsWhen it comes to raising capital, most start-ups turn to venture capitalists for funding once they have exhausted their own networks (family, friends). This is where you may get introduced to term sheets, as venture capitalists use this type of document to define funding arrangements. The term sheets will outline the terms of the investment from the venture capitalists and what you will provide in return. It also defines the guidelines of how both parties will act to protect the capital being put forward.
3. Shareholder AgreementsA shareholder agreement is a contractual agreement amongst the shareholders of a corporation that describes how the company plans to operate and outlines shareholders’ rights and obligations. It provides details regarding the relationship between everyone involved, the expectations of all parties involved, and how disputes will be handled if disputes arise. A right of refusal provision may also be included, which provides the holder of this clause to review any offers or transactions before it is presented to third parties or other potential investors. A shareholder agreement can provide you with a structure on how to run a company, satisfy stakeholder expectations, and set you up for entrepreneurial success.
4. Employee AgreementsUnless you are planning to do everything on your own, you are going to need some people to help. However, if you are going to hire employees, you may need an Employment Agreement to outline their terms.
This most often includes a job title, responsibilities, how much management and employees are compensated, how many hours they must work, and many other details that protect your company and the employee’s rights.
In this employment agreement, it is important for entrepreneurs to have a termination provision that employees can be terminated at the employer’s discretion. This may consist of the sum of their severance that they will be paid to the employee upon termination and the length of notice required—equal to or exceeding— the relevant provincial statutory regime.
5. Confidentiality AgreementsIf what you are working on is highly classified or proprietary, you might also want to consider a Non-Disclosure Confidentiality Agreement or a Non-Solicitation Agreement. Whenever someone new comes on board, or you share business trade secrets with members of your company, this agreement will protect your information from getting leaked to competitors or other entrepreneurs. A Non-Solicitation Agreement will prevent ex-employees from attempting to poach individuals they worked with or developed relationships with during the course of their employment.
Do You Need Some Legal Advice?Starting a business can be fun, but it does not mean you do not need to consider all of your legal obligations in order to be protected.
You do not need to navigate through these waters on your own. The BLG Business Venture Clinic can help you with your legal questions and guide you on how to get started with your new business. Contact us today to find how we can help you.
Artificial Intelligence and the Law: Who owns the assets created by an AI robot and what does it mean for Canadian business?
Many successful start-ups find success utilizing new technology to solve old problems, or to make things easier and more convenient. One such technology is artificial intelligence (AI). As AI becomes more common, it is important to understand the legal risks and ambiguity that exist. A recent Interesting Engineering article raises an important question; who owns intellectual property (IP) created by AI?
The World Intellectual Property Organization, located in Geneva Switzerland, has an online exhibit featuring the art of Ai-Da, an AI humanoid robot who has sold its works for over $1.5 million in Canadian dollars and also appeared in a music video for the band The 1975. The AI program used by Ai-Da utilizes sight via camera vision, neural networks, and a paintbrush or pencil in her hand to complete its art. The AI program itself was developed by PHD students from Oxford University. The exhibit focuses on the ways AI can transform culture and industries, showing that robots like Ai-Da are likely to continue creating works or products which will make the question of who owns their work more relevant.
The exhibit explores the question of how, “In a world that is increasingly governed by algorithms, many of which function completely under the radar, where does human governance end and robotic self-ownership begin?” As technology continues to advance, this will only become a larger question. Within this general question the exhibit wonders if AI can be a creator or inventor within current intellectual property frameworks, or if a human is required. The exhibit even questions what AI is since no agreed upon definition seems to exist. This is further complicated by the fact even human intelligence can be difficult to clearly define.
While Ai-Da may be one of the more unique and independent AI artists, it is far from alone. Google, of course, has both a program which would help to write local news articles, as well as software that generates unique music by listening to recordings. The news articles still involve significant human capital and inputs, and to a lesser extent the music program also is reacting to what humans are training it with, but they show first steps towards how AI could become very prevalent in society and the economy. Interestingly, a novel co-authored by an AI program almost won a Japanese literary prize competing against human authored novels. In this case, the human team selected sentences and words while setting parameters for the program. It then completed the novel titled, “The Day A Computer Writes A Novel” when translated to English.
With new developments, many have begun to argue that intelligent robots need to be treated more like human beings. Some believe that robots in the workplace deserve ethical rights as their use, and violence against them, increases. A more detailed, and legal, case is made by Ryan Abbott in “The Reasonable Robot: Artificial Intelligence and the Law.” Abbott argues that the law should not discriminate between AI and human behaviour.
In Canada, it is far from clear who would own IP created by an AI program. The Copyright Act requires “the author was, at the date of the making of the work, a citizen or subject of, or a person ordinarily resident in, a treaty country.” This would not cover AI, or if it were classified as a computer, potentially leaving their works exploitable by others. However, Canadian law has not directly confronted the emergence of AI as a potential author and creator.
There are many routes that can be taken for regulating AI and how IP and employment laws apply to it. One potential avenue that would eliminate risk for entrepreneurs is to treat robots and AI like property, specifically how the law treats pet ownership. If something like Ai-Da earns money or other positive benefits, then the owners of Ai-Da could reap the rewards. Alternatively, if Ai-Da somehow injured people or caused property damage, those same owners could face the consequences. This is certainly not a perfect fix, but it is just one example of how the issue could be handled without drastically changing Canadian law. Artificial intelligence is well on its way toward being a major feature of everyday life and regulations and laws need to adapt and be proactive instead of reactive for when, inevitable, something goes wrong with AI and ends up in the courts as a dispute.
Other countries have already made determinations on how they will handle AI creations. The United States copyright office has followed U.S. court decisions in determining that an original work of authorship must be created by a human being. Australian courts similarly determined work generated with the intervention of a computer could not be protected by copyright because it was not human produced. Alternatively, jurisdictions like New Zealand, Ireland, India, Hong Kong, and the United Kingdom have gone with a different approach. The best example is that of the U.K., which through legislation has declared that “In the case of a literary, dramatic, musical or artistic work which is computer-generated, the author shall be taken to be the person by whom the arrangements necessary for the creation of the work are undertaken.” They go further in defining computer generated work, clarifying it “is generated by computer in circumstances such that there is no human author of the work”, which creates an exemption to any human requirements.
Artificial Intelligence is not going away. It is going to continue to evolve and create more headaches for those responsible for policies and laws that govern its use. Regardless of the route Canadian lawmakers take, let’s hope businesses and entrepreneurs can receive some certainty about how IP laws will treat AI creations.
 Chris Young. (2020, September). New Exhibition Explores Whether AI Robots Should Own Intellectual Property. Retrieved from https://interestingengineering.com/new-exhibition-explores-whether-ai-robots-should-own-intellectual-property.
 WIPO and IP: A virtual experience. Retrieved from https://wipo360.azurewebsites.net/.
 The 1975. (2020, July). The 1975 - Ai-Da responds to ‘Yeah I Know’. Retrieved from https://www.youtube.com/watch?v=dTK9N7n8Wcg&ab_channel=The1975VEVO.
 Julia Gregory. (2017, July). Press Association wins Google grant to run news service written by computers. Retrieved from https://www.theguardian.com/technology/2017/jul/06/press-association-wins-google-grant-to-run-news-service-written-by-computers.
 Devin Coldewey. (2016, September). Google’s WaveNet uses neural nets to generate eerily convincing speech and music. Retrieved from https://techcrunch.com/2016/09/09/googles-wavenet-uses-neural-nets-to-generate-eerily-convincing-speech-and-music/.
 Chloe Olewitz. (2016, March). A Japanese A.I. program just wrote a short novel, and it almost won a literary prize. Retrieved from https://www.digitaltrends.com/cool-tech/japanese-ai-writes-novel-passes-first-round-nationanl-literary-prize/.
 Copyright Act, RSC 1985, c C-42. Retrieved from https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-c-42/latest/rsc-1985-c-c-42.html.
 Andres Guadamuz. (2018, October). Artificial intelligence and copyright. Retrieved from https://www.wipo.int/wipo_magazine/en/2017/05/article_0003.html.
Basic Tax Implications for Canadian Entrepreneurs
With the calendar year coming to a close and the first quarter of next year on the horizon, tax season looms large for Canadian businesses, employees, and entrepreneurs alike. It is important to distinguish the tax implications between individuals earning income from employment and self-employed individuals in an enterprising venture. This post outlines the general principles of how the tax system in Canada operates, how tax is assessed, and explores the implications for entrepreneurs operating a business in Canada.
The Source Concept of Income and Residency
The central document that determines the rules and processes behind Canadian tax is the federal Income Tax Act. According to the Act, Canada taxes income earned based on the source concept of income. Section 3 of the Income Tax Act states that the income of a taxpayer for a taxation year is determined by… “the taxpayer’s income for the year from each office, employment, business, and property”. Although there is no specific mention of when markers to use when calculating a “year”, for tax purposes, taxpayers calculate it on the calendar year.
Taxation is also based on the taxpayer’s residence. Canadian residents are taxed on world-wide income from all sources which are the office, employment, business, and property categories mentioned above. Individual persons are determined to be Canadian based on their customary mode of life, the main indicators of which are an individual’s primary ties. These include maintaining a permanent place of residence in Canada and whether or not you have a spouse or dependent(s) in Canada as well. Generally, if a taxpayer permanently lives in Canada and has a family, there is no question as to the residency, and thus tax implications for that taxpayer. As entrepreneurs are generally advised to carry on their business through a corporate vehicle, there are different ways to determine residency for corporations. For corporations, the residency test looks to whether a corporation is incorporated in Canada either federally under the Canadian Business Corporations Act, or provincially with the Alberta Business Corporations Act. Additionally, for companies operating in multiple jurisdictions, Courts will look to the test from DeBeers, which asks where the “mind and management” of the corporation resides. In other words, one must determine where the Board of Directors of that particular company sits and makes decisions from.
For our purposes, individual residency is generally not an issue as most small businesses and growth companies start locally. For corporations, an entrepreneur may incorporate in other jurisdictions in which they operate in, so the mind and management test will play a large factor in determining residency, and thus the taxpayer’s tax implications.
Income for Businesses
The general formula to apply when calculating taxes is simple. First, the resident taxpayer determines the total of all amounts each of which is the taxpayer’s income from a source, which are listed but not limited to as office (elected officials), employment, business (entrepreneurs), or property (rental). Second, the taxpayer includes any taxable capital gains, which is income derived from the disposition (sale) of property like houses and shares. Next, deductions like moving and childcare expenses are removed from the total income. Finally, the taxpayer subtracts any office, employment, business, and property losses from their total income.
A business is a profession, calling, trade, manufacture of any kind whatsoever and an adventure or concern in the nature of trade, but it does not include income from an office or employment. Section 9(1) of the ITA lays out the initial starting point. A taxpayer’s income for a taxation year from a business is the taxpayer’s profit from that business or property. However, the Act does not define what “profit” means, but common law jurisprudence indicate that profit means net profit. Net profit is equal to the total revenue of a business less any expenses incurred earning that revenue, adjusted by specific rules contained in the Act. In the jurisprudence, there are a variety of cases that ask the question whether or not the impugned activity constitutes carrying on a business, or whether the activity is deemed to be a personal endeavours. However, as one of the main points the case law examines is whether or not the activity is being done for the intent to profit, and entrepreneurs go into business to make money, that is not a point that requires much discussion.
Subsection 9(1) also contains the primary rule for business deductions through the definition of a taxpayer’s income from a business as the “profit from the business… for that year”. As mentioned, profit from the business is defined to be net profit. This is determined according to accounting or commercial principles unless the principles are overridden by other provisions of the Act or case law. Therefore, the primary rule for deductions is net accounting profit calculations, less any reasonable expenses incurred in earning income from the business.
The concept of calculating profit and deducting expenses is a general rule that is subject to specific restrictions; section 18 of the Act specifically limits a deduction for certain expenses. These restrictions have further exceptions from section 20 which serve to overrise section 18 and specifically allows a deduction of capital cost allowance. Capital cost allowance is simply the depreciation of capital property over a certain period of time. Finally, section 67 imposes a generable “reasonableness standard” on the overall computation of profit and deductions and denies a deduction of expenses that are otherwise deductible to the extent that the amount of the expense is unreasonable. Section 18(1)(a) provides that an expense is deductible to the extent that it is incurred for the purpose of earning income from a business or property. Stated colloquially by Imperial Oil, did the loss in business arise in the normal course of operations?
The case law and Act also explicitly outlines expenses that are and are not deductible. Generally, personal or living expenses are not deductible under sections 9(1) and 18(1)(a). Additionally, expenses incurred when travelling to and from work, and expenses incurred from recreational facilities and club dues are not deductible either. Some deductions like moving and childcare expenses are allowed; though not explicitly calculated in computing business income, it slots into the overall deductions framework. The rules surrounding moving expenses dictate that the deduction is limited to the income earned after the move and require the taxpayer to meet four criteria: (1) the purpose for the move must have been for work; (2) residences were actually changed; (3) the new residence must be in Canada; and (4) the new residence must be at least 40 km closer to the new work location.
Finally, many entrepreneurs and employees are working from home in light of the COVID-19 pandemic. Section 18(12) of the Act allows for the deduction of income from a home workspace, subject to approval from the Canada Revenue Agency. The CRA examines whether the spave is the individual’s principal place of business, meaning over 50% of the work occurs there, or if the space is used exclusively for the purpose of earning income from business and used on a regular and continuous basis for meeting clients, customers or patients of the individual in respect of the business. According to the CRA, there are three types of workers who may qualify; these include employees, commissioned salespeople, and self-employed workers. Deductible expenses typically include utilities such as heating and electric home maintenance and supplies. Additionally, commissioned salespeople and self-employed workers can claim property taxes and home insurance. Entrepreneurs may also claim a portion of their mortgage and capital cost allowance.
How an entrepreneur approaches their tax season has major implications for the overall viability of their business. Losses incurred from operating a business can be applied retroactively to past and future income, which allows the taxpayer to focus whatever resources they have into their venture. Due to the unique possibilities of potential businesses, the general rule does not enumerate the specific deductions an entrepreneur has to keep in mind, instead applying a reasonableness standard for expenses incurred. In order to gain a deeper analysis into the various tax implications to start-ups and growth companies, consultation with a tax specialist and professional accountant is highly recommended.
 Income Tax Act, RSC 1985, c 1 [the Act].
 Ibid at s 3(a).
 Ibid at s 2(1).
 Thomson v MNR,  SCR 209.
 Denis Lee v MNR,  TCC.
 Canada Business Corporations Act, 1985 RSC, c C-44; Business Corporations Act, 2000 RSA, c B-9.
 De Beers Consolidated Mines, Ltd v Howe,  UKHL 626.
 The Act, supra note 1 at s 3(d).
 Ibid, at s 248(1).
 Ibid, at s 9(1).
 Daley v MNR, ; Arcorp Investments Ltd v Canada, 2000 CanLII 16535 (FC).
 The Act, supra note 10.
 The Act, supra note 1 at s 18.
 The Act, supra note 1 at s 20.
 The Act, supra note 1 at s 67.
 Imperial Oil v MNR, 1947 CanLII 293 (FC).
 The Act, supra note 1 at s 18(1)(l); Henry v MNR,  SCR 155.
 The Act, supra note 1 at s 248(1).
 The Act, supra note 1 at s 18(12).
 Canada Revenue Agency, Business-use-home Expenses (February 2019), online: <https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/report-business-income-expenses/completing-form-t2125/business-use-home-expenses.html>.
 The Motley Fool, CRA Update: Work-From-Home COVID-19 Tax Break (July 2020), online: <https://www.fool.ca/2020/07/24/cra-update-work-from-home-covid-19-tax-break>.
Picture this: you’re an up-and-coming entrepreneur and starting an orange juice business. The problem is, you don’t have any oranges! So, being savvy, you go and find an orange supplier. You manage to find one and they are willing to sell you their last load of 500 oranges. The catch is, another party has approached the supplier and also wants to purchase the 500 oranges. The supplier has left it to both of you to decide who gets the oranges. 
So, what do you do? It might seem you only have two options. Either one of you gets all 500 oranges or you find a way to divide the load. Either way, someone is walking away from the supplier without all 500 oranges. So, naturally you and the other party go back and forth arguing over prices and are fighting for every orange.
ENTER: Interest-Based Negotiation
What if you both could get all 500 oranges? You, being that savvy entrepreneur, decide to ASK the other party what they need the oranges for. It turns out, they are making a serum out of orange rinds. You acknowledge that you only need the juice. And voila – you decide to split the price of the load and you’ll each get the part of the orange you need! Everybody wins.
In this simple example, it was easy to find a solution beneficial to both parties if the right question was asked. This is the basis of Interest-based negotiation (otherwise known as principled negotiations, integrative bargaining or interest-based bargaining) - asking questions, uncovering the interests of the other party and collaborating to find a solution that works for everyone.
Now let’s back up – what is negotiation?
Negotiation has many definitions, one definition is: “Negotiation is a basic means of getting what you want from others. It is back-and-forth communication designed to reach an agreement when you and the other side have some interests that are shared and others that are opposed”. – Fisher and Ury, authors of Getting to Yes
In negotiations, people tend to think in ways that ultimately hurt their chances for the best deal, such as:
1.Negotiations are a zero-sum world and that the other party is an adversary.
2.Either you win or you lose.
3.You both only have your positions.
This thinking tends to limit negotiations, as then typically information is not shared among parties and often the best solutions are left aside. People stand firm with their positions and budging on them is felt as losing.
Interest-based negotiation removes the thinking of “positions” and replaces it with “interests”. Instead of demands, terms and ultimatums, you have underlying motivations, needs and concerns and THE WHY! 
The basic method of Interest based negotiations, outlined in international best seller Getting to Yes is as follows:
People: Separate the people from the problem
Every negotiator has two kinds of interests – in the substance and in the relationship. They are interested in solving the substantive issues while also maintaining a good working relationship with the other party. Sometimes, strong emotions from the relationship of the parties can be wrapped up in the substantive issues in a negotiation and cause complications. It is essential that you disentangle the relationship from the substance and try to reach a better understanding of each party’s concerns. Base the relationship on mutually understood perceptions, clear two-way communication and a forward looking, purposive outlook.
Interests: Focus on interests, not position
Your position is something you have decided upon while your interests are what caused you to decide.  Shared interests lie latent in every negotiation, even if they are not immediately obvious. Looking to interests instead of positions will allow you to develop creative solutions that can meet both party’s needs.
Options: Invent options for mutual gain
Having both a lot at stake and only thinking there is one possible solution inhibits creativity. Do not settle on the first agreement made. Instead, brainstorm a wide range of options before choosing the best one. If getting to the ultimate agreement proves out of reach – try agreeing on smaller, “weaker” options like a provisional agreement or only agreeing on what you disagree about. At least then some issues are discussed, and you have something to build on in the future.
Criteria: Use objective criteria/standards.
Rely on a fair, independent standard to settle differences. Whether it is market value, replacement cost, an expert opinion or a particular law. People using objective criteria tend to use their time more efficiency to talk about possible solutions and outcomes.
Best Alternative to a Negotiated Agreement (“BATNA”)
Your BATNA is the best-case scenario if you don’t reach an agreement. The better your BATNA, the more you can ask for in your current negotiation. Understanding your own BATNA, but also the BATNA of the other party is crucial.
For example, you are at a car dealership. You are negotiating the price of a new car. Your current car works fine – you are just looking for a good deal. However, the salesperson has targets he must meet by the end of the day and is desperate for a sale. In this example, your BATNA is stronger than the other party’s, and thus you are able to push for a better price. If the deal doesn’t happen, you still will have a car to drive. It is important to remember that asking questions, doing research and putting yourself in the position of the other party is the only way for you to uncover their BATNA.
Knowing your own BATNA and also the BATNA of the other party not only allows you to negotiate more effectively but forces you to consider their interests, motivations and the WHY!
The interest-based negotiation method permits you to reach a consensus on a joint decision efficiently. Using this approach will not only benefit your own negotiations but can guide your thought process to overcome differences in many areas of life. Remember to ask questions, uncover the interests of the other party and develop creative solutions for mutual benefit.
 David Wright, Law 508 – Negotiation (Faculty of Law, University of Calgary, 2019)
 Roger Fischer & William Ury, Getting To Yes: Negotiating Agreement Without Giving In, 3rd ed (New-York: Penguin Books, 2011).
 Wright, supra note 2.
 Fischer, supra note 2 at xxvii.
 Wright, supra note 1.
 Fischer, supra note 2.
 Ibid at 23.
 Wright, supra note 1.
 Fischer, supra note 2 at 43.
 Ibid at 74.
 Ibid at 71.
 Katie Shonk, “Principled Negotiation: Focus on Interests to Create Value” (13 July 2020), online (blog): Program on Negotiation Harvard Law School < https://www.pon.harvard.edu/daily/negotiation-skills-daily/principled-negotiation-focus-interests-create-value/>.
Sales Tax Obligations and Opportunities for Small Canadian Businesses
Author: Vanessa Fisher
If you are a new company with plans to operate in Canada it is important to be aware of your sales tax obligations before you begin selling any goods or services within the country. This blog outlies the goods and services tax (“GST”) / harmonized sales tax (“HST”) regimes and walks through signing up for a GST/HST account online. Lastly, this blog explains how to collect and remit GST/HST to the Canada Revenue Agency (“CRA”) and provides guidance on the Input Tax Credit (“ITC”) system available to small Canadian businesses.
GST is a 5% tax applied to most items and services sold in all provinces and territories within Canada. Certain provinces (Ontario, New Brunswick, Newfoundland and Labrador, Nova Scotia and PEI) have combined their provincial sales tax with GST, utilizing a unique HST rate that is collected in the same way as GST. When a business sells goods or services in Canada, they are required to add the applicable GST/HST rate to their selling price. The GST/HST is then collected by the seller at the point-of-sale and held until remitted to the CRA.
Businesses in Canada are not obligated to begin collecting and remitting GST/HST on their goods and services sold within the country until they are no longer considered a “small supplier” by the CRA. A business is no longer a small supplier once their revenue before expenses (that is, the company’s sales, not their profit) exceeds $30,000 in a single calendar quarter (three consecutive months), or over the last four consecutive quarters. While collecting and remitting GST/HST is mandatory on sales that occur after this $30,000 threshold is passed, a small business can also elect to voluntarily register for a GST/HST account prior to this point and become eligible for Input Tax Credits (“ITCs”), a point I will return to.
How to Register for a GST/HST Account
In order to sing up for a GST/HST account, one must first apply for a Business Number (“BN”). A BN is a unique number assigned to your corporation that simplifies all your dealings with the CRA and is also necessary for filing corporate income tax, setting up payroll accounts, importing/exporting accounts, and GST/HST accounts. The registration for a BN also automatically creates an account for filing corporate income taxes.
The CRA’s business registration page allows you to register your corporation with a BN at no cost. From there, you can create and add a GST/HST account (and any other accounts needed) on the same webpage. This process will also create a CRA e-portal for your business that allows you to update your corporate information, do your tax filings, and process payments to the CRA online.
How to Collect and Remit GST/HST
The GST/HST you charge your customers at the point of sale will depend on the GST/HST rate of the location where your customer is purchasing and receiving their order. The CRA calls this the place-of-supply. For example, if your company is in Alberta and you sell an item of clothing for $10.00 to a customer residing in Toronto, you would need to apply the Ontario HST rate of 13% to the purchase price (for a total of $11.30), not the Alberta GST rate of 5%. In this scenario, Alberta is the place where the selling corporation resides, not the place-of-supply. However, if the customer physically comes to Alberta to purchase the clothing from a store in Alberta, the Alberta GST rate of 5% would apply to the purchase.
The CRA provides a useful Provincial Rates Table and GST/HST Calculator to calculate what to charge on your sales to each province.
It is also important to note that Alberta, Nunavut, the Northwest Territories, and the Yukon have no provincial sales tax, and other provinces (as mentioned above) utilize an integrated HST, which means that only GST/HST is collected from sales in these provinces. British Columbia, Manitoba and Saskatchewan have a separate provincial sales tax (PST/RST/QST) and rules for collecting and remitting provincial sales tax are unique to the provinces. Provincial sales tax will not be considered in this blog, but obligations related to provincial sales tax should be investigated if your company ever plans to sell its products to customers in these provinces.
Once you begin collecting and charging GST/HST (and any relevant provincial sales tax), you must also tell your customers that the sales tax is either included in pricing or will be added separately, and this information should be clearly indicated on your invoice with the rate being charged and your registration number.
Your business is also considered to hold GST/HST collected “in trust for the Crown” until you remit it to the CRA. This constitutes a kind of trust fund that comes into existence automatically when you collect sales tax from your customers. Failure to remit amounts collected to the CRA has serious consequences, so it is important to keep detailed records of your sales that supports the information you will send to the CRA when you file your GST/HST return at the end of each reporting period. 
Input Tax Credits and Zero-Rated Supplies
As mentioned, Canadian businesses are not obligated to begin collecting and remitting GST/HST until their sales exceed $30,000 in a single calendar quarter, or over the last four consecutive quarters. That said, for certain small businesses it might be worth voluntarily registering for your GST/HST account early, even if it is not required. One reason is to get a head-start on good record-keeping, as you will have to begin collecting and remitting GST/HST as soon as you register for your account. Volunteer registration also allows your business to make use of ITCs.
ITCs are basically a mechanism to offset your GST paid on expenses for the business against the GST collected from sales of the business. For example, if the GST/HST you pay on expenses incurred for your business was $1,000 for the reporting period, and the GST/HST collected from customers for your goods/services sold was $3,000, you can claim an ITC of $1,000 and therefore be required to remit back $2,000 to the CRA.
ITCs can be especially useful if you are registered for the GST/HST account and produce or sell zero-rated supplies. Certain goods and supplies are considered zero-rated by the CRA and therefore not subject to GST/HST charges on sales. At the same time, a business selling zero-rated goods is still eligible to claim ITCs on the GST/HST paid or payable on purchases and operating expenses related to the commercial activities of its business. In other words, a refund is available on GST/HST paid on certain expenses for the business despite not being required to collect or remit GST/HST to the CRA on sales. It is also advised to obtain professional advice from a lawyer and/or accountant to find out exactly what you can and can’t include as expenses in the business as this can be a complicated area to navigate.
There is a wealth of information on the CRA website under the General Information for GST/HST Registrants  and GST/HST for Businesses  that provide further guidance on completing your GST/HST return and much more.
 “Canada’s Harmonized Sales Tax Explained”, online: Investopedia <https://www.investopedia.com/terms/h/harmonized-sales-tax.asp>
 “Definitions for GST/HST (Small Supplier)”, online: Government of Canada <https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/gst-hst-businesses/definitions-gst-hst.html#smallsupplier>
 CRA Business Registration page: https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/registering-your-business/bro-register.html
 “GST/HST rates and place-of-supply rules”, online: Government of Canada <https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/gst-hst-businesses/charge-collect-place-supply.html>
 GST/HST Calculator: https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/gst-hst-businesses/charge-collect-which-rate/calculator.html
 “Charging Provincial Sales Tax on Online Sales” <https://www.thebalancesmb.com/charging-provincial-sales-taxes-on-online-sales-2948448>
 “Charge and Collect the Tax - What to do with Collected GST/HST”, online: Government of Canada < https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/gst-hst-businesses/charge-collect-what-collected.html>
 “Zero-Rated Goods”, online: Government of Canada <https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/4-3/basic-groceries.html>
(also, in speaking with a CRA agent, I was told that coffee is only a zero-rated good as long as it is in bean or grind form and sold in packaged bags. If you brew the coffee and sell it, it becomes taxable for GST/HST purposes).
 “Input Tax Credits (ITCs)”, online: Government of Canada <https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/benefits-allowances/remitting-gst-hst-on-employee-benefits/input-tax-credits-itcs.html
What is a liability waiver?
A liability waiver is an exclusionary clause that is drafted to protect a party from liability by excluding liability altogether or limiting liability. Also known as “limitation of liability” clause or “waiver”. If taking part in the activities involved in your business could lead to any risk of injury for the patrons of your business, as a business owner, you will want your customers to sign a liability waiver. This blog post is intended to give a brief overview of liability waivers and to give business owners some tips on how to approach this issue.
Standard Form Contracts
Standard form contracts are massed produced documents that often include the liability waiver and can be the document that you get every customer to sign. There are many advantages to a standard form contract. The standard form means that you will not have to negotiate specific terms with every customer that comes to your business, this leads to reduced costs and increased certainty in the terms. These are very commonplace in startup companies and should be used correctly to ensure that the liability waiver is enforceable.
As Professor Girgis has written, the standard form contracts present the customer with a “take it or leave it” agreement, and the lack of negotiation between the patron and the company brings into question whether the clause should be enforceable.
How to ensure your waiver is enforceable
First, it is well established law that reasonable notice needs to be given to patrons. Practically, this refers to when you bring the liability waiver to the attention of the patron and how you go about bringing this to their attention. The more onerous the clause, the more notice you should give to the patron. If the document waives you of liability even when you, the company, is negligent, you will need to bring a considerable amount of early notice to the patron. In a British Columbia decision involving a bike park the company’s waiver was enforced and protected the company from any liability. The notice given in this case involved the waiver itself, but also signs around the park written in bold saying “STOP – READ THIS” to bring extra attention to the waiver of liability. Within the document, the bike park used yellow boxes, bold print and larger letters in places to draw attention to the important details. Further, the language used in the document was clear and blunt, and left no doubt that the typical adult could understand the waiver.
In another British Columbia case, however, signage did not help a ski resort from escaping liability. An important distinction to be made here is that there was not a signature required for the waiver of liability. When a liability waiver does not require express signature or a document that the patron’s attention can be drawn to, businesses are required to meet a higher bar for reasonable notice. In other words, there is no magic formula to ensuring that your waiver will be enforceable and certainly protect you from any liability.
In order to have an effective waiver of liability you need to use plain language and to bring sufficient notice to your patrons. The language used should be understandable to any person and should avoid unnecessary legal jargon. Further, it should be a company policy to affirm with the customer that they have had enough time to read the contract.
If an exclusionary clause ends up being challenged in court for its enforceability, the outcome is ultimately unpredictable. However, a prudent business owner will follow the two basic tips set out in this post: use clear language, and ensure the customer has the time to read the contract.
 Jassmine Girgis, “Incorporating Waivers of Liability into Contracts” (May 11, 2020), online: ABlawg, http://ablawg.ca/wp-content/uploads/2020/05/Blog_JG_Apps.pdf
 See Thornton v Shoe Lane Parking Limited,  EWCA Civ 2,
 Jamieson v. Whistler Mountain Resort Limited Partnership and Gravity Logic Inc., 2017 BCSC 1001,
 Apps v Grouse Mountain Resorts Ltd., 2020 BCCA 78 (CanLII)
Where are all the BIPOC Entrepreneurs in Canada?
Entrepreneur. What image comes to mind when you think of that word? Perhaps a Zuckerberg-esque, T-shirt wearing tech genius in his mid-twenties. Maybe a duo of university drop-outs utilizing their computer programming skills to fulfill their dream of making computers small enough for people to have in their homes and offices. The image you envision when you think of an entrepreneur likely doesn't borrow traits from Madam C.J. Walker, whose hair-care business led to her becoming the first American woman millionaire. You most likely don't picture Michael Jordan, who used his success as a basketball player to build a best-selling footwear brand.
Steve Jobs. Elon Musk. Jeff Bezos. Why is it that the figure of the white male has become the pinnacle image associated with entrepreneurship? In 2013, economist Ross Levine and London School of Economic professor Yona Rubinstein released a working paper that explored the demographics, personality traits and earnings of entrepreneurs. They found that entrepreneurs are "disproportionately white, male, and highly educated". Big surprise.
While entrepreneurial activity is on the rise, Black, Indigenous and People of Color ("BIPOC") entrepreneurs remain underrepresented within the startup sphere. This underrepresentation of BIPOC entrepreneurs extends beyond the borders of any one country in particular. In Canada, although 1.2 million Canadians identify as Black, a 2015 survey conducted by Black in Canada found that there are only 2,000 Black-owned businesses of "significant scale" within our borders. Strikingly, I was unable to find any published statistics regarding the prevalence of Indigenous-owned businesses in Canada. It is obvious that there is a systemic issue that results in the underrepresentation of BIPOC entrepreneurs within the start-up sphere in Canada. The question remains, however, as to why such under-representation exists?
Well for one, you need money to start a successful business. One of the most significant challenges that BIPOC entrepreneurs face is securing capital to back their endeavors. Many early-stage growth companies and start-ups receive their financial backing in the form of venture capital. Due to the reliance many growth companies have on venture capital, venture capitalists act as gatekeepers for the success of start-ups. Although diverse founding teams, defined as a group with at least one founder with a non-white perceived ethnicity, have earned a 3.26x median realized multiple on IPOs and acquisitions, 30% more than the 2.5x realized multiple for all white founding teams, there is still a severe funding gap between BIPOC and white entrepreneurs. For example, venture capital funding for Black American women entrepreneurs accounted for 0.2 percent of all venture funding in the US in 2018. Again, I was unable to find comparative statistics regarding the financing of Indigenous Canadians.
Despite the clear financial evidence indicating that investing in companies founded by BIPOC entrepreneurs is a good move, the funding gap between white and BIPOC-led companies is prevalent. This can be attributed to unconscious bias. Venture capital investment decisions are likely to be subconsciously influenced by familiarity bias, or the preference of an individual to remain confined to what is familiar to them. If an entrepreneur reminds a venture capitalist of Zuckerberg, Musk, or Bezos, familiarity bias creeps in to increase their perceived trustworthiness and the view that the company is more likely to be a sound investment.
The geographic remoteness of many Indigenous populations further exacerbates the problems BIPOC entrepreneurs face when trying to obtain capital to finance their businesses. Statistics Canada indicates that around 60% of indigenous peoples live in rural areas. The vast majority of rural Indigenous communities do not have a bank within their boundaries. Collectively, the four major banks in Canada have less than 50 aboriginal branches, banking outlets, or banking centres located on-reserve. Section 89 of the Indian Act prohibits the use of reserve land as collateral, and banks are reluctant to provide loans if assets cannot be seized in the case of a default. As you can see, there are a number of factors that contribute to the racial funding gap for entrepreneurs.
Oh yeah, and there's racism. Although sometimes not overtly obvious, systemic, anti-BIPOC racism resulting from biases is ingrained in the business sphere. It is easy to quantify the barriers that BIPOC entrepreneurs face in the financial realm. However, in addition to the barriers in obtaining capital to back their ventures, BIPOC entrepreneurs face a multitude of social barriers that are difficult to quantify. Building a strong network of business personnel tends to lend an image of legitimacy to an entrepreneur. If you surround yourself with successful people, you are more likely to be perceived as successful. However, the systemic anti-BIPOC racism that exists in offices and executives suites restricts BIPOC access to high level positions within companies. For example, a Ryerson University study on diversity of companies in Vancouver, Montreal, Calgary, and Toronto was released in June and indicated that Black people held only 13 out of 1,639 board positions at the companies involved in the study. If your access to executive positions within a Company is restricted, it is difficult to build a network of high-level, well-respected business personnel. Additionally, as a direct result of inequitable government support and funding to indigenous communities, only 48% of on-reserve indigenous peoples graduate high school. In a society where the corporate world relies so heavily on educational background, social access to corporate networking for Indigenous business-owners is heavily restricted and largely absent.
Systemic racism, combined with statistics that show that BIPOC entrepreneurs are less likely to receive financial support at the venture capital level, have made the start-up world as inaccessible as ever. In the aftermath of George Floyd's murder at the hands of Minneapolis Police Officers, difficult conversations about systemic racism in the entrepreneurial world are no longer avoidable. Instead of merely taking performative measures such as posting a black square or writing about support for the Black Lives Matter movement on their social media, entire industries must be challenged to review how their actions contribute to the underrepresentation of BIPOC entrepreneurs in the start-up sphere. Rather than echoing Doug Ford's sentiment that "we don't have the systemic, deep [racist] roots that the [US] has had for years”, Canadians need to recognize that Canada is not immune to the systemic racism that plagues society and stifles BIPOC entrepreneurship in the US.
Innovation is a key facet of entrepreneurship. To function successfully, innovation demands inclusivity. Taking time to inform yourself of the barriers that BIPOC entrepreneurs face is a good first step. After reading this post, I encourage you to research BIPOC entrepreneurs who have been successful in spite of the multitude of barriers they face in obtaining their success. I have provided a list of BIPOC entrepreneurs below. Hopefully, in going through this list, the image that you perceive when you hear the word "entrepreneur" will be changed.
Navigating the Non-Profit Scene in Alberta
The Charity and not-for-profit sector is a vital and growing part of the Canadian economy. In 2017, economic activity in the non-profit sector totalled $169.2 billion, representing 8.5% of Canada's GDP. Despite the large impact non-profit corporations have on the Canadian economy, the organizational legislation for non-profit corporations has been largely unaltered in Alberta since the 1920's. This has led to a fragmented and potentially confusing landscape for keen social entrepreneurs looking to make their mark in the not-for-profit scene.
This article will attempt to demystify the process of incorporating a non-profit in Alberta by outlining the different options a new organization has to incorporate.
Different Ways of Creating a Non-Profit Organization in Alberta
Depending on the purpose of the organization, an applicant may choose from any of the following pieces of legislation to incorporate a non-profit in Alberta:
(i)Companies Act, RSA 2000, c C-21;
(ii)Societies Act, RSA 2000, c S-14;
(iii)Canada Not-for-Profit Corporations Act, SC 2009, c 23;
(iv)Business Corporations Act, RSA 200, c B-9; or
(v)Cooperatives Act, SA 2001, c C-28.1.
There is no single, universal best way to incorporate a non-profit. The path a start-up non-profit takes will depend on its unique objectives and needs.
The sheer amount of options that an applicant has can lead to confusion. In order to offer some clarity, the features, advantages, and disadvantages of incorporation under the Companies Act, Societies Act, and the Canada Not-for-Profit Corporations Act (the three most common ways of incorporating a non-profit) will be further outlined.
(i)Incorporation under the Companies Act
Non-profits corporations created under the Companies Act are formed to promote art, science, religion, charity or other similar endeavors or for promoting recreation for their members.
A non-profit corporation can operate in almost any way; however, it must operate on a cost-recovery basis and cannot distribute profits to its shareholders or members.
There are two types of non-profits that exist, (a) private, and (b) public.
a.Private non-profit corporation
This structure places limits on the number of shareholders / members, the number of shares or membership transfers, and puts restrictions on inviting members of the public to subscribe for shares in the company.
b.Public non-profit corporation
Under this structure there are no restrictions with respect to the number of shareholders / members. However, there are continuous reporting obligations. These organizations typically obtain most of their financial support through donations received from the public.
The main disadvantage of the Companies Act is that it is more complex than the Societies Act. A company must decide if it will act as a private or public company. If it does operate as a public company it faces more extensive financial reporting requirements.
(ii)Incorporation under the Societies Act
A society is an incorporated group of five or more people who share a common recreational, cultural, scientific, or charitable interest. According to the Government of Alberta it is the most used method of incorporating a non-profit, likely due to the fact that it is the simplest and cheapest way to incorporate.
The major advantages of a society are that:
i)a member of a society may not be held responsible for the debts of the society;
ii)the society can enter into contracts as an entity; and
iii)a society is able to apply for government grants.
The major disadvantage of a society is that it is not allowed to engage in any type of ongoing business operations. An organization must consider if part of its model will include engaging in a trade or business, such as a second-hand store. A society also cannot distribute property among its members during its lifetime.
(iii)Incorporation under the Canada Not-for-Profit Corporations Act
A start-up may determine that it wishes to incorporate federally rather than provincially. If it wishes to do so, it can incorporate under the Canada Not-for-Profit Corporations Act ("NFP"). This is typically only advised for companies which wish to operate nationally and require name protection across Canada. Even if a company intends to operate in more than one province, it can still incorporate as a non-profit in Alberta and then register in the other provinces it intends to do business in. This is often the simpler and quicker option rather than incorporating federally.
Similar to the Companies Act, the NFP distinguishes between two types of not-for-profit corporations: (a) Non-soliciting corporations, and (b) soliciting corporations. A company will be designated as a soliciting corporation if it receives revenues from public sources in excess of $10,000. Non-soliciting corporations is the residual category which every other corporation falls under in the Act.
 David G Roberts, "Charitable and Non-Profit Corporations in Alberta - an update on legal and tax issues" (1989) 27:3 Alberta L Rev 476 at 477.
 Companies Act, RSA 2000, c C-21, s 200(1)
 Ross Swanson, "Incorporating a Not-For-Profit Organization" Duncan Craig LLP (17 January 2018), online (blog): < https://dcllp.com/blog/2018/01/17/incorporating-a-not-for-profit-organization/>.
 Societies Act, RSA 2000, c S-14, s 3(1).
 Alberta, Culture and Tourism, Incorporation and Other Options - Supplemental Handout Package (Alberta: Culture and Tourism, 2015) at 5, online: <http://boardleadershipcalgary.ca/wp-content/uploads/2015/04/Handouts-BL-Calgary-Incorporation.pdf>.
 Supra Note 6.
 Ibid, s 4(1).
 Ibid at 10.
 Canada Not-for-Profit Corporations Act, SC 2009, c 23, s. 5(1).
 Wayne D Gray, "A Practitioners Guide to the New Canada Not-for-Profit Corporations Act", (2010) 89 Can B Rev 141 at 145.
Blog posts are by students at the Business Venture Clinic. Student bios appear under each post.