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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).
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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 Written by Cole McMullen
JD Candidate 2026 | UCalgary Law In recent years, environmental, social, and governance (ESG) considerations have moved from the periphery of corporate strategy to its core. Nowhere is this more evident than in the evolving regulatory landscape in Canada, where climate-related financial disclosures are fast becoming a cornerstone of corporate governance. As investors, regulators, and the public demand greater accountability from businesses, ESG is no longer a voluntary initiative—it is an imperative. This blog post explores the growing importance of ESG disclosure in Canada, with a particular focus on climate risk, and considers how startups and growing ventures can align with emerging expectations without being overwhelmed. Climate Risk as Financial Risk The concept of climate risk has undergone a fundamental transformation. What was once considered a matter of corporate social responsibility is now viewed as a financial issue with direct implications for asset valuation, insurance, and long-term viability. The Bank of Canada and the Office of the Superintendent of Financial Institutions (OSFI) have repeatedly emphasized that climate-related financial risks—both physical and transitional—can pose systemic threats to the stability of the Canadian economy [1]. These risks include the physical consequences of climate change (such as extreme weather events) as well as policy and market shifts associated with the transition to a low-carbon economy. For companies in carbon-intensive industries, failure to adapt may mean diminished access to capital and heightened exposure to legal liability. The Role of Disclosure: From Voluntary to Mandatory In 2022, the Canadian Securities Administrators (CSA) proposed new climate-related disclosure requirements that closely align with the framework developed by the Task Force on Climate-related Financial Disclosures (TCFD) [2]. These guidelines ask publicly listed companies to disclose information in four key areas: governance, strategy, risk management, and metrics and targets related to climate issues. While these requirements were initially voluntary, the regulatory tide is turning. The federal government’s 2023 budget announced its intention to work toward standardized ESG disclosure requirements, particularly for federally regulated financial institutions [3]. Meanwhile, the Canadian Sustainability Standards Board (CSSB), launched in 2023, is actively working to adopt and adapt global ESG reporting standards to the Canadian context [4]. This move toward mandatory ESG disclosure reflects a broader recognition that transparency around climate risks is essential for market stability. It also reflects growing investor demand for consistent, comparable, and reliable ESG data. Implications for Startups and SMEs Though current disclosure mandates are primarily targeted at large public companies, startups and small to medium enterprises (SMEs) are not immune to these changes. As part of supply chains, as recipients of venture or institutional capital, or as future IPO candidates, smaller firms increasingly face pressure to demonstrate ESG awareness. In particular, venture capital funds are beginning to incorporate ESG metrics into their investment theses. Firms that fail to account for environmental impacts or that lack internal governance policies may find themselves at a disadvantage when seeking funding. This trend has been reinforced by global movements such as the Principles for Responsible Investment (PRI), which count several major Canadian funds among their signatories [5]. For early-stage companies, the key is to adopt scalable ESG frameworks that evolve with growth. Founders should consider setting internal climate-related goals, documenting risk management processes, and communicating their ESG vision to stakeholders—even if formal disclosure is not yet required. A Legal Lens on ESG Governance The legal implications of ESG governance are expanding. Directors and officers now face fiduciary duties that extend to material climate-related risks, especially as case law and regulatory expectations evolve. In 2023, the Canadian Association of Pension Supervisory Authorities (CAPSA) released guidelines stating that pension fund administrators have a duty to consider climate risk as part of their fiduciary obligations [6]. Although these principles currently apply to pension administrators, the logic applies more broadly. As climate risk becomes increasingly material to long-term financial performance, boards and executives have a legal obligation to inform themselves and act accordingly. Failure to do so could give rise to claims of mismanagement or breach of duty. The Path Ahead: Strategic ESG Integration As ESG continues to shape the contours of Canadian corporate governance, proactive integration will be a marker of resilient businesses. While startups may not be bound by current disclosure rules, embedding ESG considerations early offers several advantages. It can enhance brand reputation, improve investor relations, and prepare companies for the inevitable tightening of regulatory frameworks. Moreover, tools and guidance are becoming increasingly accessible. Organizations such as the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB) provide sector-specific disclosure templates, while Canadian think tanks and law societies are beginning to offer training and resources tailored to SMEs. Ultimately, the integration of ESG is not about compliance alone—it is about building companies that are better equipped to thrive in a complex, climate-conscious world. Conclusion Canada’s corporate governance landscape is entering a new phase—one where climate risk and sustainability are integral to fiduciary responsibility and strategic direction. Startups and established enterprises alike must respond to this shift with agility and foresight. By treating ESG not as a burden but as a blueprint for innovation and resilience, Canadian businesses can position themselves to lead in the decade ahead. [1] Office of the Superintendent of Financial Institutions. OSFI's Climate Risk Management Guideline B-15, (2022), online: https://www.osfi-bsif.gc.ca/Eng/fi-if/rg-ro/gdn-ort/gl-ld/Pages/b15.aspx. [2] Canadian Securities Administrators. Proposed National Instrument 51-107: Disclosure of Climate-related Matters, (2022), online: https://www.securities-administrators.ca/. [3] Government of Canada. Budget 2023: A Made-in-Canada Plan, (2023), online: https://www.budget.canada.ca/2023/report-rapport. [4] Canadian Sustainability Standards Board. Mandate and Activities, (2024), online: https://www.frascanada.ca/cssb. [5] Principles for Responsible Investment. Signatory Directory, online: https://www.unpri.org/signatories/signatory-directory. [6] Canadian Association of Pension Supervisory Authorities. ESG Considerations in Pension Plan Management, (2023), online: https://www.capsa-acor.org/. Written by Craig Kelba
JD Candidate 2025 | UCalgary Law Business ideas can take many forms and operate in countless places. Often, entrepreneurs will consider the assets that they have and how they can make these assets work for them. Alberta is no stranger to the short-term rental boom. Apps like Airbnb and Vrbo offer a platform for property owners to connect their asset to potential customers. However, the short-term rental market, as with many other industries, can be full of different parties with conflicting motivations. Often, these conflicting motivations add layers of complexity to what appears to be a simple business on the surface. Not everybody feels supportive of the short-term rental market. Cases where a short-term rental owner wishes to operate under a condominium corporation can give way to conflict, due to the nature of the condominium corporation’s obligations, powers, and governance. The collective nature of condominium complexes can be restrictive to the operation of business. If you are considering operating a short-term rental business out of a condominium owned property, this post provides information about the relationship between short-term rental owners, condominium corporations, and conflicts which may arise. 1. Condominium Property Act and creation of bylaws In Alberta, condominium corporations are governed by the Condominium Property Act (the “Condominium Act”).[1] In the Condominium Act, bylaws set out by the corporation shall regulate the corporation and provide for control, management and administration of the units, real and personal property of the corporation, the common property and the managed property.[2] Further, bylaws of the corporation are set on the initial registration of the condominium plan, and remain in force until they are repealed or replaced by special resolution.[3] 2. Special Resolutions According to the Condominium Act, any bylaw may be amended, repealed or replaced by a special resolution, however, any amendment, repeal or replacement of a bylaw will not take effect until:
The majority of special resolutions are passed in writing, as it is generally difficult to gather the sufficient number of voters at a properly convened meeting to pass a special resolution.[6] Additionally, amending, repealing or replacing bylaws by special resolution requires appropriate notice of the proposed change given to all interested parties (i.e., owners or registered mortgagees). This notice period is set in the bylaws of that particular condominium corporation (for example, the bylaws may state that a 30-day notice period is required before a special resolution can be passed). Conversely, the Condominium Act, or associated regulations do not provide a limit for how long a special resolution may take to receive the appropriate number of votes or signatures. Simply put, the threshold provides only for the number of “yes” votes required to pass the special resolution. Abstaining from voting does not explicitly constitute a vote of “no”, unless this is accounted for in the bylaws. Failure to sign a written special resolution is more clearly defined as simply not having voted yet. 3. Personal Information Protection Act Although they may fit the definition of a not-for-profit organization under other legislation, condominium corporations have been defined as “organizations” under the Personal Information Protection Act (“PIPA”).[7] Consequently, condominium corporations are permitted to collect and use personal information for purposes that are reasonable, with a general requirement that collection, use and disclosure of personal information must be consented to by the individual.[8] It is important to note that consent does not necessarily need to be explicit for collection, use and disclosure of personal information required under PIPA. In certain situations, consent may be implied. For example, a person who has signed a waiver has given implied consent that information identifying them as the signor could be disclosed to show that they did sign the document. Under Section 20 of PIPA, there are also situations where personal information may be disclosed without the consent of the individual.[9] For the most part, being allowed to disclose personal information without consent of the individual under PIPA is related to specific organizations; governmental statutes, regulations, or bylaws; emergencies; or investigations.[10] However, under Subsection 20(a) of PIPA, there is an exemption given where a reasonable person would consider the disclosure of the information is clearly in the individual’s best interests, or that individual would not reasonably be expected to withhold consent.[11] Special Resolutions Under PIPA: With regard to signed special resolutions an individual consenting for the disclosure of their identifying information is dependent on the circumstances. Under the Condominium Property Regulation (“Condo Regulation”), the text of written ordinary and special resolutions voted on by the corporation and the results of the voting on those resolutions, may be disclosed pursuant to a written request of an owner, purchaser or mortgagee, the solicitor of an owner, purchaser or mortgagee, or a person authorized in writing by any of those persons (see S 44(1) of Condominium Act).[12] The Alberta government addresses voters who give their signature supporting a special resolution. Under PIPA, this is addressed in Section 8, where consent to collect, use or disclose personal information can be given to an organization by voluntarily providing information to the organization for that purpose.[13] In this case, giving your signature for a special resolution is deemed consent for the purposes of that special resolution. The disclosure of identifying information is less clear for those who have not given their signature, however. The condominium board is a representation of the condominium corporation, and a condominium corporation is defined under S 25 of the Condominium Act as all persons who are owners of the units or entitled to the parcel of land if the condominium corporation is terminated.[14] The Office of the Information and Privacy Commissioner (“OIPC”) has been clear that although personal information collected by the condominium corporation is subject to PIPA, but so long as the condominium corporation is carrying out its duties or powers under the CPA and does not include extraneous or irrelevant information in carrying out those duties and powers, then it will generally not be disclosing personal information in a breach of PIPA.[15] In another decision, the OIPC defined the actions of condominium corporations as “unit owners making collective decisions regarding the upkeep and management of the condominium.”[16] It is reasonable to consider that condominium corporations may disclose information of potential voters to ensure that those voters have the opportunity to provide their own decision in the collective group. Directors of a corporation must consider different stakeholders when making decisions on behalf of the corporation, but ultimately, these decisions can be justified if the director acts honestly and in good faith with a view to the best interests of the corporation.[17] The best interests of the corporation does not necessarily mean that all parties need to be satisfied. Rather, it would be a situation where the board of directors is concerned with the overall good of the corporation as a whole. Note on PIPA: A special resolution is a collective decision of the owners in a condominium corporation. Although carrying out these decisions requires good faith, it would appear that a corporation would need to be able to identify and contact potential voters on a decision in order to ensure that it is carrying out its duties, obligations, and powers. Ultimately, personal information may be disclosed for a reasonable purpose, and only to the extent reasonably required to meet that purpose.[18] 4. Short Term Rentals Under Condominium Corporations Under the Condominium Act, Section 32(5), bylaws cannot operate to prohibit or restrict the devolution of units or any transfer, lease, mortgage or other dealing with them or to destroy or modify any easement implied or created by the Act.[19] Effectively, condominium bylaws cannot prevent a person from leasing out their condominium. However, short term rentals on platforms such as AirBnB operate differently, as Alberta Courts have previously identified these types of rentals as licenses rather than leases.[20] Further, the Court in Kuzio established that licenses are not referenced in S 32(5) of the Condominium Act, meaning they are not protected from bylaws in the same manner that leases are, and that “unit owners share common property and agree that management of the condominium will be under the control of the Board of Directors which may pass Bylaws governing all unit owners.”[21] Finally, the Court in Kuzio concluded that the bylaws of the condominium corporation were valid, and further that they were allowed to use these bylaws to prohibit short term AirBnB style rentals where no lease has been entered into.[22] 5. Final Notes Condominium boards are created to represent the common interests of all owners in the condominium plan. As such, the powers of management can be far reaching so long as the board is acting in what appears to be the best interests of the condominium corporation as a whole. This includes usage of personal information, as well as passing, amending and replacing bylaws by special resolution. Issues with condominium boards can be very difficult to navigate. Often times these issues are complex and time consuming. If you are experiencing an issue with your condominium board, it may require you to seek a lawyer who practices in corporate governance, residential tenancy, or real estate law. [1] RSA 2000, c C-22 [ABCA]. Note: in force since April 1, 2023 [2] Condominium Act, S 32(1). [3] Condominium Act, S 33. [4] Condominium Act, Ss 32(3, 4). [5] Condominium Act, S 1(1)(x). [6] https://cci.ca/resource-centre/view/1900 [7] Alberta, Office of the Information and Privacy Commissioner, Order P2005-005 (Edmonton: OIPC, 2006), at para 22, online: <https://oipc.ab.ca/wp-content/uploads/2022/01/Order-P2005-05.pdf>.; SA 2003, c P-6.5 <https://canlii.ca/t/5619m>. [8] PIPA, S 19. [9] PIPA, S 20. [10] PIPA, S 20(b-r). [11] PIPA, S 20(a). [12] Alta Reg 168/2000, S 20.52(l), <https://canlii.ca/t/569zk>; Condominium Act, S 44(1). [13] PIPA, S 8(1),(2). [14] Condominium Act, S 25(2). [15] Alberta, Office of the Information and Privacy Commissioner, Order P2009-003 (Edmonton: OIPC, 2009), at para 22, online: < https://oipc.ab.ca/wp-content/uploads/2022/01/Order-P2009-03.pdf>. [16] [16] Alberta, Office of the Information and Privacy Commissioner, Order P2016-02 (Edmonton: OIPC, 2016), at para 47, online: < https://oipc.ab.ca/wp-content/uploads/2022/01/Order-P2016-02.pdf >. [17] Condominium Act, S 28(2)(a). [18] Condominium Act, S 2(a). [19] Condominium Act, S 32(5). [20] Condominium Corporation No 042 5177 v Kuzio, 2020 ABQB 152 (CanLII), (“Kuzio”) <https://canlii.ca/t/j5jjh>, at para 26. [21] Kuzio, at paras 40, 42. [22] Kuzio, at para 74. Written by Ayman Khan
JD Candidate 2025 | UCalgary Law Startups often begin with an idea birthed by a single entrepreneur or a group. Most companies have more than one founder, and the life cycle of a start-up company shows that these founders pool their skills together to create a viable entrepreneurial venture, buoyed primarily by the hopes, dreams and ambitions of the founders. Thus, start-ups also represent a labour of love from the point of view of the founder, who may resist any changes or challenges to the path visualized for the proverbial brain-child of the founder. The skillset required for these initial few stages in a start-up’s life is oftentimes different from the skillset required to further grow such an enterprise once it is established. This leads to conflicts, mainly over vision and plans for the start-up. There may also be issues due to the temperament and competency of founders, which did not prove to be a hindrance during the initial stages but have now reared their head after growth. A 2008 Harvard study found that 50% of founders were no longer the CEO after their venture passed the two-year mark[1]. This indicates that most start-ups and nascent enterprises realise the need for professional management fairly quickly into their life-cycle as Founders’ skillsets are critical primarily at foundation of the company. This leads to several issues as Founders may all be loyal to each other, thus making removal much more difficult. It may also be rendered even more complex by the nature of start-ups as the majority of employees at the onset may also have directly been hired by the founders personally. The aforementioned Harvard study found that 4 out of 5 entrepreneurs in such scenarios are forced to step down from the CEO’s post, with most also being shocked that investors had insisted that they give up control [2]. All of these factors only serve to increase the likelihood of issues with founder ousting. A start-up’s leadership transition from founder to professional management may thus make or break the start-up. Thus, there is a need to “Founder Proof” companies to prevent such founder conflicts from potentially sinking the company. The first step in founder-proofing a startup is to establish a comprehensive founders' agreement. This document outlines each founder's roles, responsibilities, and equity distribution, along with procedures for handling disputes and exit strategies. Said agreement should also address decision-making authority, conflict resolution mechanisms, and the process for adding or removing founders, in order to prevent conflict. Critically, the agreement should be drafted in a manner that prevents “hold-up risks” or deadlocks, wherein the consent or a particular action is required on part of a founder in order to move forward with a decision. This could also take the form of decision-making procedures wherein the approval or consent of all founders is required. Another potential hold-up risk may arise from onerous exit procedures for founders, it is thus prudent to ensure that founder and officer exits do not contain unnecessary requirements. Therefore, it is advisable to seek legal counsel when drafting this agreement to ensure that it complies with Canadian business laws and best practices. The Business Venture Clinic shall be able to assist with providing an informational memo regarding such. Another essential element in protecting a startup is implementing strong corporate governance practices. Incorporating the business as a corporation under the Alberta Business Corporations Act [3] creates a legal framework that defines shareholders' rights, board responsibilities, and officer roles. By structuring the company with a well-defined board of directors and adopting robust corporate bylaws, founders can ensure that key decisions are made transparently and with accountability to each individual founder or officer, thus reducing the likelihood of conflict or ambiguity. Intellectual property (IP) ownership is another critical factor in founder-proofing a startup. Founders must ensure that all IP, including software code, branding, and proprietary processes, is assigned to the company rather than individual contributors. This is particularly important when founders collaborate on innovations before formal incorporation. Founders should use written agreements such as a separate IP assignment agreement and a non-disclosure agreement (NDA) in the series of agreements that form the individual’s employment agreements, in order to establish clear ownership rights. Registering trademarks, patents, or copyrights further protects the startup's valuable assets. Failure to register IP ownership with the company as opposed to individual founders may lead to negative behaviour as it does not align the incentives of the founders with the company, thus leading to the founder having too much power. Finally, founder-proofing requires a strong focus on financial controls and transparency. Establishing clear financial reporting processes, budgeting protocols, and expense tracking systems ensures that all founders have visibility into the company's financial health. This may mean, amongst other measures, defining the company’s mandate realistically, not including contradictions when it comes to officer and founder responsibilities (especially those responsibilities that are fiscal management and reporting), and having clear time frames and milestones for debt and financing agreements. Additionally, startups should implement written financial policies that outline expense approvals, investment decisions, and revenue distribution to reduce the risk of financial mismanagement. By implementing a comprehensive founders' agreement, establishing strong governance practices, protecting intellectual property, and ensuring financial transparency, Canadian entrepreneurs can effectively founder-proof their startups. Taking these proactive steps not only safeguards the business from internal conflicts but also enhances its credibility with investors and stakeholders, thus leading to more positive outcomes. Building a resilient company requires planning and foresight, therefore founder-proofing is a crucial component of ensuring long-term success for any company, particularly start-ups. [1] Wasserman, Noam. "The Founder's Dilemma," Harvard Business Review (2008) <https://hbr.org/2008/02/the-founders-dilemma> [2] Ibid [3] Business Corporations Act, RSA 2000, c B-9, |
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