IP Issues regarding Software Codes that Canadian Start-ups and Growth Companies Should Know11/26/2025 Written by Thao Nguyen
JD Candidate 2026 Intellectual property (IP) is important to a business, especially start-ups and growth companies, as IP could influence the profit a business can obtain in selling its products, services, and processes. Therefore, a business employs many safeguards to ensure its IP rights over any work that the business’s employees produce or work on. More specifically for software, a business usually uses technical and legal safeguards to protect its IP rights over software code written by its employees.[1] As the current Canadian patent laws do not allow patents for abstract ideas, obtaining patent protection for software-related inventions can be difficult.[2] Therefore, this blog will focus on how a business can protect its software codes using copyright and trade secrets. In Canada, copyright is governed by the Canadian Copyright Act (the Act)[3]. Under the Act, software codes developed during the course of an employee’s employment belong to the employer if there is no agreement that says otherwise.[4] An employee, as the author of the software, may assign their rights and grant a licence to the employer. The assignment and grant must be in writing and signed by the employee.[5] Issues arise when an employee claims that they work on the software outside of the course of their employment. For example, in Knowmadics v Cinnamon (Knowmadics),[6] the employer plaintiff applied for an interlocutory injunction order prohibiting the use and sale of a piece of software sold by a former employee and her new business. The court found that the employee’s new software was similar to the software created by the employee during the course of the plaintiff employer’s employment and that the sale of this new software depleted the plaintiff’s customer base by undercutting prices, leading to irreversible loss of goodwill and market share.[7] The court granted an interim, interlocutory injunction allowing the defendants to service only their existing Canadian clients.[8] It is, however, not guaranteed that a court would find in favour of the employer in cases of software copyright dispute with former employees. In the recent decision Nexus v Krougly,[9] with similar facts to Knowmadics, the court found for the employee defendants who started a new company upon departing from the plaintiff’s company. The court commented that despite the actions of the defendants in selling software he created during the course of employment with the plaintiff employer, there was no copyright infringement in this case as the purpose of copyright law was not to punish bad actors.[10] Copyright issues also arise from the statutory requirement of having the assignment in writing and signed by the author of the software. Most notably, in Tremblay v. Orio Canada Inc.[11], the Federal Court found the employee did not sign the assignment of the copyright as required by s 13(4) of the Act.[12] Therefore, the employee did not assign the copyright over to the employer; however, the court also found that the employee gave an implied licence for the employer to use the copyrighted software, so there was no copyright infringement. Besides copyright, an employer can protect its copyright over its software codes by keeping them as trade secrets. It is common to find restrictive covenants on employment agreements requiring employees not to disclose information they learn from the course of their employment to others, or that they cannot compete with the former employer within a specified period and/or in specific geographical areas. These employment restrictive covenants, however, are prima facie unenforceable as they restrict open trade and employment opportunities for an employee. The presumption is rebuttable in very few cases where the court finds that these restrictive covenants are enforceable. The onus is on the employer to prove that these restrictive covenants are enforceable: 1) Whether the employer had a proprietary interest entitled to protection; 2) Whether the temporal or spatial limits are too broad; and 3) Whether the covenant is overly broad.[13] Overall, it is common to find that generic restrictive covenant provisions found in boilerplate employment agreements are usually found unenforceable. For example, in Ceridian Dayforce Corporation v. Daniel Wright[14], the employer in the industry of providing human resources management software to businesses sought to enforce a non-compete clause barring a former software developer employee from providing or engaging in any business competitive with the employer within North America for 12 months. From the evidence, the court found that the scope of the term “Competitive Business” and the proprietary interest the employer claimed were overbroad and ambiguous, effectively barring the employee from working in any capacity in a competitive business.[15] Additionally, the court determined that the 12-month period was not reasonable and arbitrary and that the geographical scope was also overbroad.[16] The court declined to conclude that the non-compete clause was enforceable due to the non-compete salary payments that the employee received, and affirmed that the non-compete clause was unenforceable and void ab initio.[17] Furthermore, other contexts regarding an employee’s departure from a business might impact the enforceability of restrictive covenants. For example, the courts have demonstrated different treatments toward restrictive covenant provisions in an employment contract versus a resale contract. In GDL Solutions Inc. v. Walker et al., [18] Mr. Walker sold his information technology business to GDL and became the general manager of GDL. Mr. Walker and GDL formed a non-compete agreement which mandated that Mr. Walker could not engage with any business that was the same or similar to GDL’s business in the geographical area of Ontario and a surrounding 10-km ring[19] for 3 years.[20] Mr. Walker later left GDL and joined a new IT business based in Toronto before the 3-year period ended. In affirming the enforceability of the non-compete agreement, the court substantiated that Mr. Walker had sufficient understanding of what business was similar to GDL’s business, the geographical and temporal restrictions were reasonable, and both parties had extensively negotiated over the asset sale with comprehensive legal consultation.[21] To conclude, start-ups and growth companies must be attentive to protect their IP rights over software codes by properly executing IP rights assignment and designing its restrictive covenant clauses in employment and resale contracts. These considerations often involve an extensive review of the nature of the business, the specific IT areas it operates in, and the roles the employees play in the software development process. A well-drafted agreement will likely prevent many future disputes or litigations regarding who owns the IP and what trade secrets can be protected and for how long after the employees’ departure from the business. The above information does not constitute legal advice. No guarantees are made regarding accuracy, completeness, or its applicability to individual situations or needs. [1] Martin Kratz, The Creator and the Benefits of Creation: Protection of Software in the Information Revolution, 1985 9-3 Dalhousie Law Journal 555, 1985 CanLIIDocs 463, <https://canlii.ca/t/7nfjg>, retrieved on 2025-11-09 [2] Ibid, p 578. [3] RSC 1985, c C-42 (the Act). [4] Copyright Act, s 13(3). [5] Copyright Act, s 13(4). [6] 2019 ONSC 6549. [7] Ibid, para 25. [8] Ibid, para 28. [9] 2024 ONSC 1346. [10] Ibid, para 370. [11] 2013 FC 109 (CanLII), [2014] 3 FCR 404. [12] Tremblay, paras 41, 48 [13] Shafron v. KRG Insurance Brokers (Western) Inc., 2009 SCC 6 at paras. 15-17; Mason v. Chem-Trend Limited Partnership, 2011 ONCA 344 at para. 16. [14] 2017 ONSC 6763 (CanLII). [15] Ibid, paras 45-46. [16] Ibid, paras 48-49. [17] Ibid, paras 54-55. [18] 2012 ONSC 4378 (CanLII). [19] Ibid, para 55. [20] Ibid, para 63. [21] Ibid, paras 49-68.
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Written by Deborah Oshidero
LLB Candidate In an era where data fuels innovation, the protection of personal information has become both a legal necessity and a cornerstone of consumer trust. For Canadian organizations compliance with privacy legislation is critical to ethical and sustainable business practices. This post explores Canada’s federal and Alberta - specific privacy laws - namely, the Personal Information Protection and Electronic Documents Act (PIPEDA) and Alberta’s Personal Information Protection Act (PIPA) - and outlines their key principles, obligations, and implications for businesses. The Canadian Privacy Framework: An Overview Canada’s privacy landscape is a hybrid of federal and provincial legislation. At the federal level, PIPEDA governs the collection, use, and disclosure of personal information by private-sector organizations in the course of commercial activities. It applies across Canada except in provinces that have enacted “substantially similar” legislation - namely Alberta, British Columbia, and Quebec. In these provinces, the provincial law applies to intra-provincial activities, while PIPEDA continues to govern interprovincial and international data transfers. [1] Under PIPEDA, “organization” is broadly defined to include corporations, associations, partnerships, and individuals engaged in commercial activity. “Commercial activity” encompasses any transaction or conduct of a commercial character, even if no direct monetary exchange occurs. This wide scope ensures that a broad range of entities handling personal data are subject to privacy obligations. Alberta’s PIPA operates in a similar manner but applies only within the province. It regulates private-sector organizations’ handling of personal information and mirrors many of PIPEDA’s principles, while introducing additional obligations - such as mandatory breach reporting and explicit rules for service providers outside Canada. [2] Defining Personal Information Both PIPEDA and PIPA define personal information as “information about an identifiable individual.” [3] This includes any data that can identify a person directly (such as name, address, or ID number) or indirectly (through combination with other available information). The broad scope of this definition reflects the reality of modern data processing, where data can easily reveal personal identity when combined with other data. The Ten Fair Information Principles PIPEDA and PIPA follow ten fair information principles, which serve as the foundation for compliant information handling. These principles guide organizations in establishing accountable, transparent, and secure data practices. 1. Accountability Organizations are responsible for personal information under their control, including data managed by third parties. Each organization must designate an individual accountable for ensuring compliance, typically labelled a Privacy Officer. This accountability extends to implementing privacy policies, training employees, and responding to complaints and inquiries. [4] 2. Identifying Purposes Before or at the time of collection, organizations must clearly identify and communicate the purposes for which personal information is collected. The purpose must be one that a reasonable person would consider appropriate in the circumstances. If the organization later wishes to use the information for a new purpose, fresh consent must be obtained. [5] 3. Consent Consent is a cornerstone of Canadian privacy law. Under both statutes, individuals must reasonably understand what they are consenting to, including the nature, purpose, and consequences of the data collection. Consent can be express or implied depending on context and sensitivity of information. Sensitive data - such as financial or medical information - typically requires express consent. [6] Both laws allow individuals to withdraw consent with reasonable notice, subject to legal or contractual restrictions. Organizations must ensure withdrawal is as simple as providing consent and inform individuals of potential implications. [7] 4. Limiting Collection Organizations may only collect the personal information necessary for identified purposes. Data collection methods must be fair and lawful, meaning that consent cannot be obtained through deceptive or misleading practices. Over-collection not only increases compliance risk but can also undermine consumer confidence. [8] 5. Limiting Use, Disclosure, and Retention Personal information must be used and disclosed only for the purposes for which it was collected, unless new consent is obtained or disclosure is required by law. Data must be retained only as long as necessary to fulfil its purpose. Once no longer required, it must be securely destroyed, erased, or anonymized. [9] PIPA further requires that personal information be retained only as “reasonably required” for legal or business purposes and securely destroyed or rendered non-identifiable within a reasonable time. [10] 6. Accuracy Personal information must be as accurate, complete, and up-to-date as necessary for the purposes for which it is used. This ensures that decisions based on such information are fair and appropriate, and that individuals are not adversely affected by outdated or incorrect data. [11] 7. Safeguards Organizations must protect personal information through security safeguards appropriate to its sensitivity, format, and storage method. Measures may include physical controls (locked cabinets), organizational policies (access restrictions), and technological tools (encryption, firewalls). Employees must be trained to maintain confidentiality and handle personal information securely throughout its lifecycle. [12] 8. Openness Transparency is critical to building trust. Organizations must make their privacy policies and practices easily accessible, clear, and understandable to the public. Under PIPEDA, this includes disclosing how individuals can access their data, what personal information is held, and how it is used or disclosed. [13] 9. Individual Access Individuals have the right to access their personal information held by an organization and to request corrections if it is inaccurate or incomplete. Under PIPEDA, organizations must respond to access requests within 30 days (with limited extensions), while PIPA allows 45 days. Denied requests must be accompanied by reasons and details on how to challenge the decision. [14] 10. Challenging Compliance Individuals may challenge an organization’s compliance with these principles. Organizations must have procedures for handling complaints, investigating breaches, and taking corrective action where necessary. Both the federal and Alberta privacy commissioners may investigate complaints and issue findings or enforceable orders. [15] Service Providers and Cross-Border Data Transfers Accountability for personal information extends to third-party service providers. Organizations outsourcing data processing remain responsible for ensuring equivalent protection of information. PIPEDA requires “contractual or other means” to ensure a comparable level of protection, even when data is handled by a third party or stored abroad. [16] PIPA introduces an additional transparency requirement: organizations must, upon request, disclose the countries where service providers collect, use, or store personal information, and provide information about related policies and contacts for inquiries. [17] This is especially relevant for businesses using international cloud or AI vendors. Breach Reporting and Notification Mandatory breach reporting is a significant compliance obligation. Under both PIPEDA and PIPA, organizations must report breaches of security safeguards that pose a “real risk of significant harm” to individuals. Under PIPEDA, notification must occur “as soon as feasible” after the breach is discovered. [18] Under PIPA, notification must occur “without unreasonable delay”. [19] “Significant harm” may include financial loss, identity theft, or reputational damage. Organizations must also maintain records of all breaches and provide them to regulators upon request. Failure to report can lead to significant penalties. Under PIPEDA, fines can reach $100,000 for indictable offences; under PIPA, organizations may face fines up to $100,000 for non-compliance or obstruction of investigations. [20] Enforcement and Remedies Enforcement under PIPEDA is overseen by the Office of the Privacy Commissioner of Canada (OPC), which can investigate complaints, conduct audits, and enter into compliance agreements. Individuals may also apply to the Federal Court for remedies, including orders for organizations to correct practices or compensate for damages. [21] In Alberta, the Information and Privacy Commissioner (AIPC) has similar powers, with the additional authority to issue legally binding orders. Individuals can also seek civil remedies if harmed by a contravention of PIPA. [22] Conclusion Privacy compliance is no longer an optional administrative exercise – it is a necessity. Both PIPEDA and Alberta’s PIPA share a foundation in fairness, transparency, and accountability, demanding that organizations treat personal information with care and respect. Note: The above information does not constitute legal advice. No garuentees are made to its accuracy, completeness, or applicability to individual situations. References [1] Personal Information Protection and Electronic Documents Act, S.C. 2000, c. 5. [2] Personal Information Protection Act, S.A. 2003, c. P-6.5. [3] PIPEDA, s. 2(1); PIPA, s. 1(1)(k). [4] PIPEDA, Schedule 1, Principle 1. [5] PIPEDA, s. 5(3); PIPA, s. 11. [6] Office of the Privacy Commissioner of Canada (OPC), Guidelines for Obtaining Meaningful Consent (2018). [7] PIPEDA, Schedule 1, cl. 4.3.8; PIPA, s. 9. [8] PIPEDA, Schedule 1, cl. 4.4. [9] PIPEDA, Schedule 1, cl. 4.5.3. [10] PIPA, s. 35. [11] PIPEDA, Schedule 1, cl. 4.6.1. [12] PIPEDA, Schedule 1, cl. 4.7; PIPA, s. 34. [13] PIPEDA, Schedule 1, cl. 4.8. [14] PIPEDA, ss. 8(3)– (5); PIPA, s. 24. [15] PIPEDA, Schedule 1, cl. 4.10. [16] PIPEDA, s. 4.1.3. [17] PIPA, s. 13.1(1). [18] PIPEDA, s. 10.1(6). [19] PIPA, s. 34.1(2). [20] PIPEDA, s. 28; PIPA, s. 59. [21] OPC, Annual Report to Parliament 2023. [22] Office of the Information and Privacy Commissioner of Alberta (AIPC), Guide to PIPA (2022). Written by Calder Newson
JD Candidate 2026 I.Introduction The blog is provided for informational purposes only and does not constitute legal advice. A question startups may face is whether to engage a potential worker as an employee or an independent contractor. Maybe someone eager to help with your startup asks, “Can you just pay me as an independent contractor?” At first glance, that might seem like no problem. However, the distinction between an employee and an independent contractor is more than just a label. This blog explains why someone may choose to be an independent contractor, how the courts determine the true nature of the employment relationship, and the potential consequences of misclassification. Let’s start with why someone might ask to be an independent contractor. II.Why might someone ask to be an independent contractor? Status as an independent contractor can offer several advantages to the worker. The significant advantage is that independent contractors can deduct certain expenses incurred for the purpose of earning an income from their taxable income.[i] That means an independent contractor could reduce their taxable income by deducting expenses for things like equipment, supplies, and travel related to earning their income.[ii] Second, an independent contractor has more control over when, where, and how they work. Essentially, an independent contractor is not tied to a single employer, allowing them the freedom to take on multiple opportunities. III.Why might my startup want to hire an independent contractor? A startup may also find an independent contractor relationship appealing. First, by hiring someone as an independent contractor, the startup does not need to withhold or remit the independent contractor’s income tax, Canada Pension Plan (“CPP”) contributions, or Employment Insurance (“EI”) contributions.[iii] Second, independent contractors are not captured by Alberta’s Employment Standards Code, RSA 2000, c E-9 (“ESC”). That means the startup is not required to provide independent contractors with benefits like vacation and termination pay. When a worker is classified as an employee, the employer must comply with the ESC and cannot contract out of the entitlements the ESC grants.[iv] IV.Can I simply make all my hires independent contractors? Simply calling someone an independent contractor does not make it so. Even if both parties agree to the label, courts look at the substance of the relationship, not just the label. There is no conclusive test which can be universally applied to determine whether a worker is an employee or an independent contractor. The total relationship of the parties is evaluated to make the determination. However, the analysis generally focuses on the control test. Courts may rely on several factors to make their determination, such as:
V.What happens if a “contractor” is actually an employee? If your startup treats someone as an independent contractor but the relationship is later deemed to be an employment relationship, there can be consequences. For example, your startup could be required to remit any unpaid income tax, CPP contributions, and EI premiums, along with any applicable interest and penalties.[vi] Additionally, your startup may be liable for a wrongful dismissal lawsuit, and the worker may be entitled to, among other things, termination pay and unpaid wages. VI.Intermediate category of “dependent contractor” An intermediate category exists for “dependent contractors.” This category applies to self-employed workers who are economically dependent on a single organization for most or all of their income.[vii] The dependent contractor category provides limited employment-like protections, including a right to reasonable notice of termination or termination pay, for contractors who are economically dependent on a single organization. VII.What if the worker incorporates a company to provide their services? Sometimes, a worker may incorporate a company and ask you to hire the company rather than hire them personally. If the worker were simply an employee, but for the worker’s incorporation, the CRA may deem the worker's incorporated company a “Personal Services Business” (“PSB”).[viii] If deemed a PSB, the worker is not entitled to the same tax deductions to reduce their taxable income as a true independent contractor, and the PSB is required to pay a higher business tax. At the time of writing, PSBs in Alberta are taxed at a rate of 41%.[ix] VIII.Conclusion Knowing the difference between an employee, an independent contractor, and a dependent contractor is more than just a formality or a label on a contract. A genuine independent contractor relationship can benefit both the worker and a startup by offering cost savings for the startup, potential tax savings for the worker, and flexibility for both parties. However, misclassifying the relationship can have serious consequences. What ultimately matters is the substance of the working relationship, not just the label you give it. Courts will look at the total relationship between the parties to decide how it should be classified. Even if a worker incorporates their own company, the CRA could deem the corporation a PSB, which carries a higher tax rate and fewer tax deductions. [i] Income Tax Act, RSC 1985, c 1 (5th Supp), s.18(1)(a). [ii] Income Tax Act, RSC 1985, c 1 (5th Supp), s.18(1). [iii] Income Tax Act, RSC 1985, c 1 (5th Supp), ss.153(1); Canada Pension Plan, RSC 1985, c 8, ss.8(1), 21(1), 21(2), and 22(1); Employment Insurance Act, SC 1996, c 23, ss.82(1) and 83(1). [iv] Employment Standards Code, RSA 2000, c E-9, s.4. [v] 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2021 SCC 59. [vi] Income Tax Act, RSC 1985, c 1 (5th Supp), s.227; Canada Pension Plan, RSC 1985, c 8, ss.21(2), and 22(1); Employment Insurance Act, SC 1996, c 23, s.82(9) and 83(1). [vii] McKee v. Reid’s Heritage Homes Ltd., 2009 ONCA 916, at para 30. [viii] Income Tax Act, RSC 1985, c 1 (5th Supp), s.125(7). [ix] Income Tax Act, RSC 1985, c 1 (5th Supp), ss.18(1)(p), 123.5, 125(7), and Part I, Division D; Alberta Corporate Tax Act, RSA 2000, s. A-15 s.21. Written by Dan Dwyre
JD Candidate 2026 | UCalgary Law Imagine you get an unusual text message from a casual acquaintance, who asks you to buy a lottery ticket for them: “I could do it myself, but I’m just too busy lately” they say, before adding “If the ticket wins, you might be in line for a share of it…maybe”. Only the most selfless of us would be rushing out for a quick pick. Yet, many early-stage entrepreneurs rely on their extended network for “volunteer” coding, marketing, and design work. This practice can be a legal time bomb—exposing founders to claims for unpaid wages, unjust enrichment, and loss of intellectual property (“IP”). The intellectual property risk Imagine a coder and a graphic designer volunteer to spend a couple of hours per week with an early-stage start-up. The developer creates a customer facing app and the designer produces the company’s logo. These “volunteers” may now have a claim to some of the firm’s most visible assets. Founders should know that inventions and creative works are generally presumed to be the property of the individual creators, meaning that they presumptively belong to the volunteers, even if made at the company’s request.[1] Employment contracts and their ancillary documents typically deal with assignment of IP,[2] but such provisions are often omitted from volunteer agreements (if such agreement exists at all). While certain laws provide exceptions to the standard presumption of IP ownership, these typically apply only to creations made in the course of employment.[3] It would be legally awkward for a start-up to first claim that an individual was a volunteer, only to later argue in court that the individual was actually an illegally underpaid employee, producing IP as part of their job. The minimum wage mandate In Alberta, minimum employment standards are set out in the Employment Standards Code[4] and its associated regulation,[5] though other laws—such as the Workers’ Compensation Act[6]—also affect the relationship between an employer and employee. Collectively, the Code and the Regulation impose numerous duties upon employers, including the obligation to pay employees a minimum wage and keep detailed records on the hours worked by an employee. Currently, employees must receive a minimum wage of at least $15.00 per hour.[7] The Code and the Regulation offer a series of provisions that deal with how to calculate whether the employee is being paid the minimum wage. There are also a variety of rules and special exceptions that apply to certain industries or compensation structures, including commission-based employees, live-in care workers, and those working in remote areas for long periods of time—such as fire tower lookouts. Collectively, these exceptions are decidedly “last century” or “old economy” and don’t speak to the challenges facing start-ups. Disguised Employment But wait—we’re talking about volunteers, not employees, right? The Code unhelpfully defines an employee as someone “employed to do work who receives or is entitled to wages” and doesn’t expressly contemplate volunteers or unpaid work at all.[8] While it might be argued that a true volunteer isn’t entitled to wages, courts have deemed “volunteer” relationships that bear hallmarks of employment as disguised employment.[9] In the past, courts have looked to context and details to decide if someone is an employee. Volunteering for civic, charitable, or humanitarian reasons, on an unscheduled or irregularly scheduled basis, and performing tasks different than those of paid employee(s) will often qualify work as a true volunteer relationship.[10] The economic purpose behind the work of start-ups likely prevents classification of unpaid workers as volunteers. There are exceptions for unpaid work done by students in Alberta; such work must occur as part of a formal training course, work experience program, or off-campus placement organized by an educational institution.[11] Offers of equity Some start-ups may offer volunteers small equity positions in exchange for work done, either initially (with a vesting provision, hopefully) or retroactively. This might be an equally fraught strategy should the value of the compensation be less than the required minimum and may be a violation of the Code’s requirement for earnings to be paid in Canadian currency;[12] it may also be seen by the courts as further evidence of a disguised employment relationship. Returning to the lottery ticket analogy There is surprisingly little reported case law in Canada arising from claims of former volunteers of start-ups over unpaid wages, unjust enrichment, or IP ownership. Perhaps these types of claims tend to settle out of court, or the contested amounts have—so far—not supported civil action. Anecdotally, volunteers are heavily sought by early-stage start-ups and volunteers respond positively to these invitations, viewing their work as a favour or as an act of personal development. The opportunity to reap future benefit from a future liquidity event (like that winning lottery ticket) is often a minor consideration. For start-up founders, the risks related to volunteer labour (if recognized at all) are seen at best as a necessary cost of doing business and at worst as yet another bridle on innovation. A call for reform It’s worth asking: what changes could be made to the Employment Standards Code and Regulation to recognize and accommodate the “volunteer labour” reality of Alberta start-ups? Like the industry-specific recognitions made in the past for “old economy” employers and employees, can new exceptions be made that encourage modern industry while still protecting workers? Perhaps the answer to this question will enhance Alberta’s reputation as a centre of business growth and innovation. [1] Bryce C Tingle, Start-up and Growth Companies in Canada, 3rd ed (LexisNexis Canada Inc., 2018) at 136. [2] Ibid, at 137. [3] Ibid. [4] Employment Standards Code, RSA 2000, c E-9 [Code]. [5] Employment Standards Regulation, Alta Reg 14/1997 [Regulation]. [6] Workers Compensation Act, RSA 2000, c W-15. [7] Regulation, supra note 5 at s 9(1)(iii). [8] Code, supra note 4 at s 1(1)(k). [9] Re Allado, [2021] ALRBD No 100 at para 120. [10] Re Venables (c.o.b. Momentum Gymnastics), [2018] BCESTD No 11 at para 30. [11] Regulation, supra note 5 at s 8(g). [12] Code, supra note 4 at s 11(2). Written by Kyla Rowsell
JD Candidate 2026 | UCalgary Law While the rationale for corporate legislation is clear, promoting transparency, accountability, and investor protection, the “one-size-fits-all” approach can be challenging in practice. Corporate laws are often drafted with stable and mature, big brother, corporations in mind and may not fit the little sister start-up structures. Rather, they may present as oversized hand-me-downs that younger siblings always hate to receive, despite wanting to be like their big brother, not fitting like they should. Mature corporations have stronger legal and financial stability that comes from years of growth, established governance, and compliance systems. Start-ups, by contrast, are still in their formative phase, narrowly escaping insolvency at every step. Applying the same rules to both can inadvertently discourage innovation or burden new ventures before they ever scale to full maturity. This post explores three areas where regulation may disproportionately burden early-stage and growth companies. 1. Securities Law and Fundraising Start-ups often face their first major hurdle when raising capital. Canada’s securities regime applies equally to all companies, meaning early-stage ventures must navigate the same complex rules that govern large public issuers. Public issuers raising money must file a prospectus, a detailed disclosure document that is both expensive and time-consuming to prepare. For most start-ups, those costs are extremely prohibitive. To ease this burden the National Instrument 45-106 provides some limited exemptions. However, these exemptions can be restrictive for start-ups. Typically, the exemptions provide that start-ups can accept investments from:
2. Corporate Governance Formalities Corporations incorporated under the Canada Business Corporations Act (CBCA) or provincial equivalents such as Alberta’s Business Corporations Act (ABCA) must maintain minute books, pass formal director resolutions, hold annual shareholder meetings, and designate registered offices, regardless of their size or stage of development.[2] Although there is an exception to annual shareholder meetings, for small corporations, where written resolutions can be provided in lieu of the formal meeting. These are reasonable expectations for large, well-resourced corporations but can be cumbersome for start-ups still finding their footing. Many early-stage companies simply do not have the capacity to manage this level of formality and as a result they do not have the capacity or knowledge to hold formal meetings and take proper board meeting minutes. For example, resolutions in writing are often created and signed in retrospect for start-ups.[3] Non-compliance can later create serious headaches. For example, there can be tax or audit complications, problems securing investment or completing due diligence during a future financing round or acquisition. For start-ups, corporate compliance often feels like a distraction from innovation, but ignoring it can be costly down the road. 3. Employment and Contractor Rules Start-ups tend to rely on lean, flexible teams because employees often wear multiple hats.[4] For example, one employee might handle marketing, administration, client support, and policy drafting all in a single day. Employment legislation was drafted to protect people from corporations who might take advantage of their labour. But stable, more established companies can take the blows of an inefficient employment base over a much longer period, compared to a vulnerable start-up that can go under from just one or two mistakes. Without proper employments contracts to capture this flexibility, start-ups face significant costs. For example, if a worker is misclassified as an independent contractor rather than an employee, the company may be liable for unpaid taxes, Canada Pension Plan, employment insurance contributions, and even retroactive wages or benefits.[5] Misclassification disputes can also lead to costly litigation an existential threat for a small venture operating on limited funds. The rigid framework of employment law, though designed for fairness, can strain the adaptability that allows start-ups to thrive. Conclusion Start-ups are fundamentally different from large, established corporations in structure and resources. Startups should be aware of potential challenges arising from operating under the same legal conditions as more established entities. One is left to consider if legislation that is nimble and proportionate may better serve the entrepreneurial ecosystem and support innovation. In short, perhaps little sister doesn’t need to borrow big brother’s suit, she needs one tailored to her own growth. [1] Alberta Securities Exemption, Common Capital Prospectus Rasing Exemptions, online, last accessed October 23, 2025: https://www.asc.ca/en/small-business/common-capital-raising-prospectus-exemptions [2] Government of Canada, Share Structure and Shareholders, online: Corporations Canada https://ised-isde.canada.ca/site/corporations-canada/en/business-corporations/share-structure-and-shareholders (last accessed 28 October 2025). [3] Bryce C Tingle, Start-up and Growth Companies in Canada, 3rd ed (Toronto: LexisNexis Canada, 2018), at 206. [4] Ibid at 126. [5] Ibid at 147 |
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