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.[1] 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.[2] 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.[3]
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.[4]
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.[5] 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.[6] 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.[7]

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.[8] 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.[9]

(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.[10]
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.[11] Non-soliciting corporations is the residual category which every other corporation falls under in the Act.[12]
 
    ____________________
[1] https://www150.statcan.gc.ca/n1/daily-quotidien/190305/dq190305a-eng.htm
[2] 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.
[3] Companies Act, RSA 2000, c C-21, s 200(1)
[4] Ibid.
[5] 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/>.
[6] Societies Act, RSA 2000, c S-14, s 3(1).
[7] 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>.
[8] Supra Note 6.
[9] Ibid, s 4(1).
[10] Ibid at 10.
[11] Canada Not-for-Profit Corporations Act, SC 2009, c 23, s. 5(1).
[12] Wayne D Gray, "A Practitioners Guide to the New Canada Not-for-Profit Corporations Act", (2010) 89 Can B Rev 141 at 145.

Employment Agreements
One of the keys to a successful start-up venture is hiring the right employees. An important part of the hiring process involves drafting an employment agreement. A good employment agreement provides a written account of the agreement between the employee and the Start-up and affords the parties a clearer understanding of their duties, responsibilities, and obligations to each other in their employment relationship. Here are some key issues to consider when drafting a strong employment agreement:

​Consideration is Important:
An employment agreement is a contract, and all contracts require consideration. An employment agreement entered into as a condition of the individual being offered employment is enforceable, whereas an employment agreement enter into once the employee has commenced work must be supported by fresh consideration.[1] As such, it is very important that an employment agreement and any ancillary contracts be given to an employee candidate as part of the offer of employment, failing to do so may leave the employment agreement unenforceable.[2]

Keep it Simple:
Life at an early-stage start-up can be turbulent, employees will likely encounter changes in the nature and character of their work as time goes on. In light of this, the description of the job duties found in your start-up’s employment agreement should be kept simple and general as possible as courts have been willing to rule that unanticipated changes in employment responsibilities can constitute constructive dismissal.[3] Having the employment agreement expressly provide for the employer’s power to change the employee’s position, duties, and responsibilities from time to time can provide additional protection to the start-up.[4]

Compensation:
The employment agreement should set out monthly or annual salary and should reference any stock option grants if they exist. It is important that any mention of additional compensation, such as a bonus, should be clearly stated to lie in the dole discretion of the board of directors – bonus’s may be earned but there may not be enough money to reliably pay it.[5]

Termination:
Unfortunately, not all employees will work out and the employment relationship will have to be terminated.  Employers have an implied contractual obligation to give employees proper notice of termination of the employment relationship unless there is “just cause” for immediate dismissal.[6] Since “just cause” presents a very high legal bar to pass, it is advised that the employment agreement prepare for a “without cause” situation.[7]

There are two legal regimes for determining proper notice – the relevant provincial Employment Standards Act and the common law. The relevant provincial Employment Standards Act will provide notice minimums that must be adhered to and cannot be contracted out of, whereas the common law provides for what is known as “reasonable notice”. Reasonable notice will typically exceed the minimum prescribed by statute and are determined by factors such as the character and length of service, and the employees age and prospects for future employment.[8] If the employer and employee have previously agreed on the length of notice to be given, i.e. a written employment agreement with express notice terms, then those terms will generally govern provided they comply with statutory minimum notice requirements.

Generally, an employer can elect whether to provide “working notice” or whether to end the working relationship immediately by providing the employee with a lump sum equivalent to the notice period that is, a payment "in lieu" of notice.[9]
In light of the above, a termination clause in an employment agreement should:[10]

1. Make it clear that the employee may be terminated at the sole discretion of the company.
2. Set out the amount of notice or quantum of severance that an employee is entitled to receive if they are terminated without cause.
3. Be very careful not to violate the notice provisions of the relevant provincial Employment Standards Act, otherwise the termination clause will be unenforceable, and the employer may be exposed to a greater notice or severance requirement at common law-reasonable notice.
4. Impact of termination on any bonuses or commission payments should be expressed explicitly.

Restrictive Covenants:
Non-Competition Provisions:
A non-compete clause is a clause under which an employee agrees not to enter into or start a similar profession or trade in competition against the employer. These clauses are notoriously hard to enforce due to courts often viewing them as an unreasonable restraint of trade.[11]
Practically, you may have an easier time enforcing these clauses if:[12]

1. The geographic and temporal scope of the covenant are kept specific and narrow.
2. Used very sparingly – only include in the employment agreements of the most vital employees.
3. Ensure that the employees have ample scope to find alternative employment in their specialization without offending the covenant.

Non-Solicitation Provisions
This kind of provisions bar the ex-employee from contacting the stat-up’s current employees, investors, customers, business partners or suppliers in connection with a rival business. These are more reliable than non-compete provisions but can still be struck down if too broad.
Practical solutions include:[13]

1. Draft the provision to prevent the employee from soliciting only the individuals with whom they personally worked and developed a relationship within the course of employment.
2. The restriction should last no longer than one-year.  
3. Clearly differentiate the provision from the non-compete provision – courts have refused to sever an invalid non-compete from a larger non-solicitation provision, resulting in both being struck.

    ________________________
[1] 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 127 [Tingle].
[2] See Holland v. Hostopia.com Inc 2015 ONCA 762.
[3] See Ferdinandusz v. Global Driver Services Inc, [1998] O.J. No. 4225.
[4] Tingle, supra note 1.
[5] Ibid at 142.
[6] Peter M Neumann and Jeffrey Sack, eText on Wrongful Dismissal and Employment Law (2020), Lancaster House, 2012 CanLIIDocs 1 [Neumann].
[7] Tingle, supra note 1 at 128.
[8] Neumann, supra note 6.
[9] Ibid.
[10] Tingle, supra note 1 at 129-30.
[11] See Elsley Estate v JG Collins Insurance Agencies Ltd., [1978] S.C.J. No. 47.
[12] Tingle, supra note 1 at 131-34.
[13] Ibid at 135-36.

Signed, Sealed and Delivered

What is a Contract?
A legal contract is an agreement between two parties that involves an exchange of rights and obligations enforceable in court[1]. The law recognizes the autonomy of individuals to create a sort of private law between themselves to regulate their own conduct in the free market. Originally, this meant upholding “freedom of contract” and the intent of the parties, regardless of imbalances in bargaining powers or external notions of fairness. The powers that be quickly realized that humans are not quite robots, and as such, this strict interpretive approach did not endure. In modern times, contracts are interpreted using several doctrines and depending on the facts of a particular case, different weights will be given to a particular doctrine. It can sometimes be a challenge to predict the outcome of this more holistic approach to interpretation, which is why “legalese” is often employed in the drafting of contracts. These are not mere magic incantations, but instead an attempt by competent solicitors to establish greater certainty in the agreement while also respecting the limitations imposed by law and public policy.
 
Elements of a Contract
In a nutshell, a contract roughly consists of five core elements: Offer, Acceptance, Consideration, Legality, and Capacity. An offer is one person’s communication to another of a willingness to enter into a legally binding agreement under specific terms[2]. Acceptance is a final, unqualified expression of assent to terms of an offer[3]. Consideration refers to the fact that promises under contract need to be “bought” or “bargained for” by an act or promise of the other party[4], ensuring an exchange of value. Alternatively, a contract signed under seal may not require consideration[5]. Legality means that a contract made for an illegal purpose or otherwise forbidden by statute will be void even if it conforms to the other elements[6]. Finally, capacity refers to the legal and mental ability to execute a contract, such as not being a minor[7].
 
Some Key Doctrines

Reasonable Person: A time tested tool for “objective” interpretation. The standard of a reasonable person is often used in different areas of law to analyse a dispute through some level of objectivity. A reasonable person is a mythical creature of the law who is not too prudent but also not reckless, is more careful than most people (and hence more careful than the average person), and consciously makes decisions accounting for the consequences of their actions[8]. It is used to determine the objective intent of contracting parties and other objective factors in a dispute.
 
Privity: The general rule from English common law is that a person who is not a party to a contract cannot have obligations or liabilities imposed on them. This part is rather uncontroversial. However, the general rule also provides that a person who is not a party to a contract cannot acquire enforceable rights under said contract. In an employment context, this second part has led to some harsh consequences, and as a result, an exception was made allowing employees to benefit from an immunity or limitation of liability granted to an employer if certain conditions are satisfied[9].
 
Honest Performance: All contracts have an implied duty of honest performance. This means that parties should not act in bad faith when performing under the contract. It does not necessarily mean acting in good faith. Respect for freedom of contract and the pursuit of economic self-interest must be weighed against the merits of judicial intervention. It is not the role of the judge to scrutinize the motives of contracting parties and enforce ad-hoc morality. Therefore, honest performance must be anchored to something objective for the court to assess[10]. This doctrine is especially relevant in employee termination, and insurance contracts.
 
Short Application[11]
Take Ursula’s contract with Ariel in the Disney rendition of The Little Mermaid. As you can imagine, there are several issues with its enforceability, but only a few need to be highlighted to make the invalid in its entirety.
 
Capacity: Ariel was a minor at the time, meaning that terms are unlikely to be enforced on her
Legality: One cannot make a contract that could lead to eternal servitude of an individual
Honest Performance: Clear attempts to undermine the performance of a counterparty to achieve a certain result under the contract would fall foul of the duty of honest performance
 
Conclusion: This contract is not enforceable in Canada. The fact that it was enforceable in Atlantica raises serious doubts about Sebastian’s confident remark that life is indeed “better down where it’s wetter… under the sea”. Don’t be like Ursula, draft proper contracts for your business venture.

Author: João Victor Lima is member of the BLG Venture Clinic and is a second-year law student at the Faculty of Law, University of Calgary.

________________
[1] CED (online), Contracts I.1, Contracts | I — Basis of Contract | 1 — Contract Defined, §1
[2] Strench v. Strench (2002), 2002 CarswellBC 695 (B.C.S.C.)
[3] CED (online), Contracts II.3, Contracts | II — Formation of Contract | 3 — Acceptance, §50
[4] CED (online), Contracts III.1, Contracts | III — Consideration for Contract | 1 — General, §102
[5] CED (online), Contracts III.1, Contracts | III — Consideration for Contract | 1 — General, §103
[6] CED (online), Contracts VIII.1, Contracts | VIII — Substantive Illegality in Contract Law | 1 — Illegality, §434
[7] CED (online), Contracts IV.2.(a).(iii), Contracts | IV — Parties to a Contract | 2 — Capacity to Contract | (a) — Natural Persons | (iii) — Infants (Minors) — Provinces Other than British Columbia
[8] Vaughan v Menlove (1837) 132 ER 490 (CP)
[9] London Drugs Ltd v Kuehne & Nagel International Ltd [1992] 3 SCR 299
[10] Bhasin v Hrynew 2014 SCC 71
[11] Clements, R., & Musker, J. (Directors). (1989). The Little mermaid [Motion picture]. United States: Buena Vista Pictures Distribution, Inc.

Standard Boilerplate Provisions
Boilerplate provisions are clauses that are included in most commercial agreements. They include governing law, severability and how time-sensitive the agreement may be. Boilerplate provisions are viewed as ancillary elements of a contract and are often the least controversial and negotiated. While parties rarely give these provisions a second look, they are fundamental in interpreting the agreement, as well as the rights and obligations of each party.[1]
 
The following post aims to shed light on five common boilerplate clauses and the importance of tailoring each provision to the needs of the parties or agreement. [2]
 

1. Jurisdiction

A jurisdiction provision will determine whether there is an exclusive or non-exclusive jurisdiction where the courts will decide disputes arising under the contract. The parties attorn to a specific jurisdiction when using an exclusive jurisdiction clause. Canadian courts are known to uphold exclusive jurisdiction provisions, “unless the party challenging the clause shows ‘strong cause’ why the clause should not be enforced…”[3] A non-exclusive jurisdiction clause will include a preferred jurisdiction but does allow parties to bring an action in another jurisdiction should the circumstances deem it appropriate.
 
Choosing a jurisdiction will depend on the parties to the agreement. It is often dictated by the location of the head office or where the business operates. A governing law provision is an inadequate substitute for a jurisdiction clause and won’t dictate where disputes may be heard.[4] The specific language of the clause can have a great impact on its interpretation. In Naccarato v Brio Beverages Inc., the court found that the word “submit” does not constitute mandatory language but was considered permissive.[5] If parties negate including a jurisdiction clause, the courts may infer the appropriate jurisdiction so long as it has a real and substantial connection to the parties or agreement.[6]
 
Specifying an exclusive jurisdiction that meets the needs of the parties is important as it can avoid unexpected legal costs in another province or country.
 
2.Entire Agreement
The entire agreement clause aims to limit the obligations of each party to only what is included in the written agreement. This means that any discussions throughout negotiations or representations made prior to signing the agreement are excluded.
 
The entire agreement provision codifies “the parole evidence rule, which provides that a contract may not be contradicted by evidence of oral and written statements made by the parties before the signing of the contract.”[7] The provision is not meant to apply proactively, only retroactively, allowing the parties to amend the agreement as needed. If a proactive application is desired, the specific wording must provide for it.[8]
 
The entire agreement provision has the power to limit the obligations of the parties to what is written and included in the agreement.[9]
 
3.Notices
A notice provision is not intended to be negotiated or favour one side or the other. It will provide the outline of how the parties must communicate throughout the term of the contract. A party can provide notice for a variety of reasons, for example: renewals, assignments, amendments, or termination. The goal is to minimize the potential for disputes to ensure each party is aware of changes in the obligations of the parties.
 
The notice clause should clarify in what manner notice should be communicated (ie. fax, e-mail, mail… etc.), who should receive the notice, where it should be sent, accepted methods of delivery and when notice is deemed received and effective.[10]
 
There are two different types of notice provisions, mandatory and permissive notice provisions. Mandatory notice provisions outline the type or types of delivery the parties must comply with. Whereas permissive notice provisions allow for delivery in ways not explicitly named in the clause. If a provision is found to be permissive, courts will take a practical approach in finding whether notice is valid, and whether the method of delivery chosen provided unfair advantages to the sender.[11]
 
It is important to tailor the notice provision to the parties and the agreement to ensure ease of delivery and acceptance.
 
4.Assignment
The assignment clause will stipulate whether or not a party to the contract can transfer the rights and obligations under the contract to another party. A common provision might look like:
 
“This agreement shall not be assigned by either party without the consent of the other party.”
 
Such a provision raises a number of concerns. Namely, it doesn’t purport to identify whether the obligations, rights or both are assigned under the agreement. Further, the clause fails to specify what standard the non-assigning party must use to approve the assignment.[12]
 
Canadian courts have addressed these concerns and found that typically, unless explicitly stated, benefits under the agreement can be assigned but the obligations must receive consent from the non-assigning party.[13] 
 
The standard by which the non-assigning party must be held is the reasonability standard. The non-assigning party may only refuse the assignment of both the benefits and obligations if it would be reasonable to do so.[14] What is reasonable will depend on the specific factual circumstances, and the parties to the agreement and the potential assignee.
 
It is important to be explicit when drafting contractual provisions. The wording of the provisions should be carefully chosen and reflect the intentions of the parties.
 
5.Force Majeure
A force majeure clause aims to protect the parties to an agreement if some unforeseeable event outside the parties control prevents them from fulfilling their obligations. The clause excuses the parties from their respective obligations without causing a breach. Generally, a force majeure clause will “acts of God, war, riots, natural or other disasters.”[15] The circumstances of force majeure fall outside what is considered normal business risk.
 
Typically, the provisions will be considered narrowly with consideration to the wording of the provision. The party seeking to evoke the provisions must prove the force majeure event.[16]
 
If a contract includes a force majeure clause, the party seeking protection must take steps to prevent the event from happening, which can vary depending on the circumstances. The party is also required to attempt to avoid the event and mitigate the potential impact. It is common for a party to provide notice to the other party to an agreement to its inability to fulfill its obligations.
 
If the contract fails to provide for force majeure, the common law provides some protection under the Doctrine of Frustration. Frustration in contract law occurs when a situation arises rendering it impossible to complete the obligations under the contract. The frustrating event must not have been foreseeable at the time the contract was entered into, nor the fault of either party.[17]
 
Conclusion
Boilerplate provisions can have powerful influence over the interpretation and application of the agreement. It is important to tailor the provisions to consider the parties interests and needs and to ensure the ability to fulfill its obligations as outlined in the contract.

    _________________________
[1] Boilerplate Clauses, Practical Law Standard Clauses, (2016), online : Thomson Reuters <https://blog.richmond.edu/lawe759/files/2016/08/Boilerplate-Clauses.doc.pdf>.
[2] Ibid.
[3] Mary Paterson, Simon Hodgett & Seth Whitmore, How to draft exclusive vs. non-exclusive jurisdiction clauses, (May, 2019) online: Osler <https://www.osler.com/en/resources/regulations/2019/how-to-draft-exclusive-vs-non-exclusive-jurisdiction-clauses>.
[4] Christmas v Fort McKay First Nation, 2014 ONSC 373.
[5] Naccarato v. Brio Beverages Inc., [1998] AJ No 47 (QB).
[6] Club Resorts Ltd. v. Van Breda, 2012 SCC 17.
[7] Soboczynski v. Beauchamp, 2015 ONCA 282 at para 46.
[8] Shelanu Inc. vs. Print Three Franchising Corp. (2003) , 64 O.R. (3d) 533 (C.A.) at paras 51 and 52.
[9] Supra note 7.                                                                                                                        
[10] J Gerard Legagneur, Why your contract’s “notices” provision is vitally important, online: < https://www.nolo.com/legal-encyclopedia/why-your-contract-s-notices-provision-is-vitally-important.html>
[11] Ross v T Eaton Co., (1992) 96 DLR (4th) 631 (Ont CA).
[12] TL Stark, Negotiating and Drafting Contract Boilerplate, (New York: AML Publishing, 2003) at page 37.
[13] Rodaro v Royal Bank, (2002), 59 OR (3d) 74 CA.
[14] McCallum, Hill & Co. v Imperial Bank, (1914), 7 Sask LR 33 (SC).
[15] Peter Wiazowski & Trevor Zeyl, Contract performance in a coronavirus world: Force majeure clauses and the doctrine of frustration, (March 2020), online: Norton Rose Fulbright LLP < https://www.nortonrosefulbright.com/en-ca/knowledge/publications/844d7cf4/contract-performance-in-a-coronavirus-world-force-majeure-clauses-and-the-doctrine-of-frustration>.
[16] Ibid.
[17] ES Block, K Brabander, M Lam, MS Bridges & K Smyth, The impact of Covid-19 on contractual obligations: force majeure and frustration, (March 2020), online: McCarthy’s LLP < https://www.mccarthy.ca/en/insights/articles/impact-covid-19-contractual-obligations-force-majeure-and-frustration>.

What are Anti-dilution Provisions?
For early-stage companies, convertible instruments offer several advantages over conventional debt or common equity.[1] However, because start-up companies change their capital structure so often, investors with convertible instruments are particularly vulnerable to changes in the value of their investment.

Anti-dilution provisions are a commonly required protection for investors in early-stage companies. The purpose of anti-dilution provisions is to ensure that a convertible instrument retains its economic value to an investor in the event the company changes its capital structure.

If the company splits its shares, for example, an investor holding a convertible preferred share should be able to convert his shares and receive the same proportion of the company as he would have before the split happened. That is an example of a corporate structural anti-dilution provision, the other type of provision is the price-protection anti-dilution provision.[2]

Corporate structural anti-dilution provisions
Corporate structural anti-dilution provisions ensure that the investor receives the same number of common shares at the same conversion price as he would have if a change to the corporation had not occurred. Common triggers include dividends, division or consolidation of common shares, amalgamation, arrangements, reorganization or recapitalization.[3]

Price protection anti-dilution provisions
Price protection anti-dilution provisions are designed to adjust the conversion price of the investor’s instrument to align with any new issuances of the companies securities. Generally speaking, these are triggered only when new securities are issued at a price below the investor’s conversion price (“down-round financing”). [4] Common triggers include the issuance of common shares, issuance of options and other convertible securities, or changes in terms of options and other convertible securities. [5]

Adjustments to the conversion price are usually calculated in one of three ways:

1. Broad-based: Weighted-average-price of all outstanding securities including shares issuable on conversion or redemption,
2. Narrow-based: Weighted-average-price of outstanding securities excluding certain conversion or redemption rights, or
3. Full Ratchet: The lowest price offered in the down-round financing.

​Generally, a full-ratchet method offers the strongest protection to the investor allowing him to receive the lowest conversion price available and a proportionately higher number of shares. To see how that works consider the example below.
​
A company has 50,000 common shares outstanding, and an additional 10,000 common shares issuable on conversion of preferred equity. An early investor has a right to convert his preferred shares into 5,000 common shares at a conversion price of $1.25 per common share. The company subsequently issues 50,000 common shares in a private placement at a price of $1.10 per common share. The investor's preferred shares contain anti-dilution provisions that are triggered by the issuance of new common shares.




​

​As the above table indicates, the impact of the price-protection mechanism matters a lot. Agreeing to anti-dilution provisions without considering the overall dilutive effect of such provisions could have serious consequences for holders of common shares (including managers or key employees).
​
Investors with bargaining power over a company will be able to extract stronger anti-dilution protections. Given the sizeable effect these provisions have on the company’s ability to attract future investors and potential dilution to common shareholders without these protections, companies should seek to limit or scale back the strength of anti-dilution provisions.

How can a company limit the severity of anti-dilution provisions?
Companies should be aware of the consequences of overly-strong anti-dilution protection given to early investors. When negotiating convertible instruments there are several ways a company can limit the severity of anti-dilution provisions.

1. Use a broad-based weighted average formula if possible.
2. Include specific exceptions for shares issued to employees or consultants, and shares issuable on other instruments.[6]
3. Include a threshold number of shares or dollar value before anti-dilution rights are triggered.[7]
4. Avoid including a catch-all provision for certain events not specifically provided for.[8]
5. Require the investor to exercise its pre-emptive rights and participate pro rata in any new financing round or else permanently lose the benefit of its anti-dilution protection (“pay-to-play provision”).[9]

     __________________________
[1] 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 85 [Tingle].
[2] Thomson Reuters: Practical Law Canada Corporate & Securities, Preferred Share Provisions: Conversion Privileges and Anti-Dilution Protection, s 3.6 “Adjustment to Conversion Price and Number of Conversion Shares” (Retrieved on October 7, 2020) [Thomson Reuters].
[3] Thomson Reuters, notes to ss 3.6(e) and (f).
[4] An investor might demand adjustment to their conversion price even if the price of new securities is higher than their conversion price, but lower than fair market value. Companies should do what they can to negotiate out of this trigger as it limits flexibility in future financing rounds (see Thomson Reuters, notes to s 3.6(a)).
[5] Thomson Reuters, notes to s 3.6(a) and (d).
[6] Tingle at p 359.
[7] Tingle at p 359; see also Thomson Reuters, notes to s 3.6.
[8] Thomson Reuters, notes to s 3.6(g).
[9] Thomson Reuters, notes to s 3.6.

BVC CLIENT SPOTLIGHT: LOOPEDUCATION
Getting information about higher education from real post-secondary students can make all the difference in the world, especially when there is a shortage of guidance and career counsellors in schools and academic consulting costs thousands of dollars.

LoopEducation’s founders are post-secondary students who saw a need and faced the same issues when they were leaving high school, so they decided to take matters into their own hands. Together, they founded LoopEducation Inc.

LoopEducation employs post-secondary students as strategists, who are able to leverage their lived experience by supporting students with common backgrounds, career interests, and goals. The company also provides Strategists a way of giving back to the community and acquiring meaningful work experience.

Strategists guide high school students in their path to post-secondary programs through Personalized Action Plans and individual consultation sessions. They provide assistance on a wide range of post-secondary issues including program requirements, financial aid and scholarships, internships and volunteer opportunities, and general career navigation.

LoopEducation uses a community model built on diversity and inclusion, specifically building positive relationships and communities within first generation post-secondary students.
They also aim to bridge the education access gap by providing educational resources, networks, and mentors that understand and work with students.

In support of their community model, LoopEducation is offering 2 free consultations to students during COVID-19 to help provide access to resources during these difficult times.

The BLG Business Venture Clinic has been drafting agreements and provided legal information to help LoopEducation strengthen their business structure and services.

Check them out at loopeducation.ca!

COVID-19 UPDATE: SUMMER 2020
The BLG Business Venture Clinic is back from its exam season hiatus! Throughout the summer we will continue to provide local entrepreneurs with free legal information, but COVID-19 has impacted our operations in two ways:
 
1. We are currently unable to meet with clients in person. This also means our drop-in hours at the Hunter Hub and with other community partners are cancelled until further notice. However, we can easily communicate with you through email and phone or video calls. We are also looking into hosting virtual drop-in sessions for your quick legal questions.
 
2. Due to COVID-19, our response time may be delayed. Responses to initial inquiries can take up to 7 days, and work product may take up to 6 weeks depending on the complexity of your legal needs. We appreciate your patience during this challenging time. 
 
Please note that the clinic is run by law students, meaning we can only provide legal information, not legal advice. We can create memos on specific issues and draft basic legal documents, but we cannot advise you on what actions you should take. If you require legal advice, we strongly suggest contacting a lawyer.

For other COVID-19 legal information, our partners at BLG have created a COVID-19 Resource Centre available here.

Get in touch with us by filling out the form on our Contact page. We also recommend taking a look at this blog post for key tips about how to prepare for a meeting with us so we can best help you and your business. 

Follow us on Twitter, Instagram, Facebook, and LinkedIn for more updates!

​

Many small businesses are based around an idea, invention, process, or improvement, the value of which is often then bedrock of the company. The legal field of intellectual property deals with protecting ideas and inventions, but it is a complex and unintuitive area even for lawyers (some in the profession make entire careers in only part of IP law). This post may help you find the category that suits your work and give hints about next steps.

​Trademarks
Trademarks protect names and logos. Trademarks are about protecting your public image, not your creative property. Trademarking “Xerox” prevents another business from using that name but not from using their photocopying technology. If you are attached to a name
Trademarks are federally registered under the Trade-marks Act.[1] This affords national protection of names and logos once registration is complete. There is a $330 application fee.[2] It is illegal to register a trademark consisting of certain prohibited features such as deceptive marks, words in other languages, or a similarity to official trademarks used by the Canadian government or the UN.[3] An application may also be refused if it is confusingly similar to a previously filed trademark.[4] You can do a search yourself in the Canadian Trademarks Database[5] to look for similar trademarks before applying. Once filed, the Canadian Intellectual Property Office will do its own search of the database for registered or pending trademarks that are similar, examine the application for compliance with the Trademarks Act and Regulations, and then publish the trademark publicly for two months. During that time, anyone can file an objection to your trademark, at which point you enter in the formal opposition process.[6] If the application is approved and no one opposes, the trademark will be registered.[7] Trademarks must also be renewed periodically.

A Note on Symbols
Symbols like ® or ™ are commonly used to denote trademarks, but this is not a legal right and is not granted by the Canadian Intellectual Property Office.[8] This is simply a business practice that has developed and does not necessarily equate with actual ownership of a registered trademark. There is also nothing stopping you from using the ™ symbol without actually registering the trademark, though unregistered trademarks are more difficult to enforce if legal challenges arise. It is recommended that you seek the advice of a trademark agent before proceeding with obtaining a trademark. The Canadian Intellectual Property Office keeps a list of registered trademark agents.[9]

Trade Secrets
This is a form of intellectual property protection that arises automatically when you use secret information in your business. The problem in your case is that you are selling the information itself, as opposed to a by-product of that information (trade secrets are often the process by which a product is created).[10] Also, if a competitor were to independently come up with the same process, trade secret law would not protect you.
Trade secrets are different from patents or trademarks in that they are not registrable. Technically, you do not “own” a trade secret, but rather you have rights to it that can be protected in contract. The most relevant protections for many businesses are non-disclosure and confidentiality agreements, which allow you to take legal action against others who disclose the information. The rights granted depend largely on the wording of the contract.

Patent
Patents are the best-known and strongest form of IP protection in Canada. Generally speaking, patents are available for physical things like inventions, improvements, and manufacturing processes. There is also precedent for patenting a business process[11] and other potential forms exist. Whether a particular thing can be patented is often only known to experts in the field with substantial experience and evaluated on a case-by-case basis. The CIPO has a database of patent agents.[12]
It is worth noting that applying for a patent is known to be an expensive process. The fees are higher than those for a trademark, and the cost of hiring the patent agent to create the patent is substantial. It is also worth noting that patents are publicly available, so your invention would be in the patent database. You would have a cause of action against anyone who profited from your process without your consent, but the process would be available to potential clients and competitors.

Summary
A registered trademark allows you to protect your name and image. Trade secret law, enforced through NDAs and confidentiality clauses, can protect against clients or competitors disclosing or using your property. A patent may or may not be possible, and it is the most expensive option and requires public disclosure of the process, but offer the strongest and clearest protections.

Kevin Lee is member of the BLG Venture Clinic and is a second-year law student at the Faculty of Law, University of Calgary.

REFERENCES
[1] Trade-marks Act, RSC 1985, c T-13 [TM Act].
[2] Canadian Intellectual Property Office, “Complete list of fees for trademarks”, 28 Apr 2017, online: <http://www.ic.gc.ca/eic/site/cipointernet-internetopic.nsf/eng/wr04194.html>.
[3] A full list can be found under the heading “What you can’t register”, see Trademarks Guide, Canadian Intellectual Property Office, Government of Canada (14 June 2019), online: <www.ic.gc.ca/eic/site/cipointernet-internetopic.nsf/eng/h_wr02360.html> (TM Guide).
[4] Ibid.
[5] Canadian Intellectual Property Office, “Canadian Trademarks Database”, 28 Apr 2017, online:  www.ic.gc.ca/app/opic-cipo/trdmrks/srch/home?lang=eng
[6] TM Guide, supra note 9.
[7] Ibid.
[8] Ibid.
[9] Canadian Intellectual Property Office, “Find an intellectual property agent”, 15 Aug 2019, online: <www.ic.gc.ca/eic/site/cipointernet-internetopic.nsf/eng/h_wr04549.html>.
[10] What is a Trade Secret?, Canadian Intellectual Property Office, Government of Canada (1 Dec 2015), online: <www.ic.gc.ca/eic/site/cipointernet-internetopic.nsf/eng/wr03987.html>.
[11] Amazon Inc v Canada (Attorney General), [2010] 4 FCR 541.
[12] Ibid.

You have a business idea and need some assistance to draft documents. You have reached out to the BLG Venture Clinic (the “Clinic”) to set up an appointment. How can you best prepare for this meeting so you can ensure you receive the best possible service?

1. BE PREPARED TO PROVIDE A SIMPLIFIED DESCRIPTION OF YOUR BUSINESS
In order for us to properly provide you with services, we will need to understand your business. The more simply you can articulate your business the better. Even if we are preparing a standard document for you, it is important for us to understand what your business is because it may be subject to certain regulations. Before your meeting with the clinic, try to describe the nature of your business in a paragraph.

2. BE PREPARED TO ANSWER QUESTIONS ABOUT WHY YOUR BUSINESS WILL BE SUCCESSFUL
During your meeting you may be asked, “why do you think your business plan will work?” We are not asking you this question to insult you. We are asking you this question to help us better understand your business. Perhaps you have discovered a way to provide an existing service more efficiently, or maybe you have created an entirely new product. Whatever the case, providing us with such information will be helpful in our understanding of your business.

3. PRIORITIZE WHAT SERVICES YOU ARE LOOKING TO RECEIVE FROM THE CLINIC
You may have long list of tasks that you need us to help you with. That is fine, however, it will be helpful for you and us if you prioritize what needs to be done first. Providing us with 1 or 2 tasks at a time will allow for a more efficient process in completing your checklist. The great thing about the clinic is that we can continue to work with a client for an extended period of time. Setting up a business takes time and rushing the process can lead to failure.

4. PLEASE BE PATIENT
Know that the process of preparing your documents will take some time. All the clinic participants are volunteers and do our best to prepare your documents in a timely manner. However, please note that the preparation of your documents is a multiple step process. After meeting with you we may have to conduct research or speak to the head of the clinic to clarify questions regarding your matter. Next, we will complete a draft of your document and send it to an advising lawyer for review. The expectation is that the advising lawyers will return the document with comments within 3 weeks after receiving it. Once we receive the advising lawyer’s comments, we may amend your document further before sending you the final product.
 
Again, our goal is to get you your product in a timely manner. Feel free to send us emails requesting an update on your file throughout the process. We would like to thank you in advance for your patience.

5. PLEASE REMEMBER THAT THE BLG CLINIC CANNOT PROVIDE LEGAL ADVICE
If you are looking for legal advice, then you will likely have to see a lawyer. Clinic members are not allowed to provide legal advice since we are still law students. However, we can provide you with legal information. The following provides an explanation of legal information and legal advice:
 
“Legal information: explains the law and the legal system in general terms. Such information is not tailored to a specific case.
 
Legal advice: applies the law, including statute and case law and legal principles to a particular situation. It provides recommendations about what course of action would best suit the facts of the case and what the person wants to achieve.”[1]
 
An example of how this may impact the services you receive from the clinic can be explained in the context of preparing a Shareholders’ Agreement. While the clinic may help you prepare a Shareholder’s Agreement, or provide you with a list of the different type of restrictions that can be attached to shares, we cannot advise you on what restrictions you should attach to such shares based on meeting you had with potential investors.
 
If you are unsure whether your matter requires legal information or advice, still make an appointment. Even if your matter falls under the category of legal advice, there may be other matters that we are qualified to assist you with.
 
For more information contact the BLG Venture Clinic*
 
Suleiman Semalulu is member of the BLG Venture Clinic and is a third-year law student at the Faculty of Law, University of Calgary.

*Due to the evolving COVID-19 situation and the University of Calgary's decision to move all in-person classes to online delivery, the clinic has cancelled all drop-in hours and has limited appointments for the remainder of the 2019-2020 academic year. We ask you contact us directly at businesscliniccoordinator@gmail.com for more information.

REFERENCES
[1] Centre for Public Legal Education Alberta,”Legal Information vs. Legal Advice. What’s the Difference?” (2019): online: CPLEA < http://www.cplea.ca/wp-content/uploads/LegalInfovsLegalAdvice.pdf>.

Climate Change is a central issue for businesses.  Mitigating and adapting to its effects is causing far-reaching transitions in sectors such as energy, land and agriculture, banking and finance, infrastructure, transport and industry.  As a result, we are seeing provincial and national attempts to price greenhouse gases (GHGs) such as Carbon Dioxide.[i]  These pricing mechanisms and their laws will impact businesses resulting in both opportunities and challenges.  It is increasingly valuable for any business looking to work directly or indirectly with natural resources to understand carbon pricing.  This is especially the case in Alberta.
 
Carbon Pricing in Alberta
1. Alberta’s Technology Innovation and Emissions Reductions (TIER) Regulation[ii]
The TIER regulation came into force on January 1, 2020 and applies to facilities that emitted 100,000 tonnes of CO2e or more per year of greenhouse gases (GHGs) in 2016, or a subsequent year.[iii]
As a start-up or small business involved in the natural resources sector, you may be thinking the scope of TIER does not apply to you.  However, a facility with less than emitted less than 100,000 tonnes of CO2e may be eligible to opt-in to the TIER if it competes against a facility regulated under the TIER regulation or emits 10,000 tonnes of CO2e or more per year and belongs to a sector with high emissions intensity and trade exposure.[iv]

2. Why Opt-in? Benefits of being regulated:
By opting in, facilities may apply to become exempt from the application of the federal Greenhouse Gas Pollution Pricing Act (GGPPA) for fuels whose emissions are included in their site reporting.  Currently, the GGPPA charge applies to fossil fuels used in Alberta, including those in the conventional oil and gas sector.  However, the GGPPA includes provisions to exempt facilities subject to provincial policies that meet the federal benchmark criteria.[v]  TIER meets federal requirements and therefore can protect regulated facilities from full costs of complying with the GGPPA, while achieving emissions reductions that is cost-efficient and tailored to Alberta’ industries/ priorities.
3. How to Opt-in?
a. Opt-in key dates[vi]:

• November 1, 2019 - Facilities which are opted-in under the Carbon Competitiveness Incentive Regulation for 2019 are automatically opted in to TIER
• December 1, 2019 - Opt-out for 2020
• January 1, 2020 - Federal fuel charge in force in Alberta - Start of TIER 2020 compliance period
• September 1, 2020 - Opt-in for 2020 or 2021 - Opt-out for 2021 - Facility specific benchmark application for 2020
• June 30, 2021 - Compliance report due for 2020
• September 1, 2021 - Facility specific benchmark application for 2021 - Opt-in/opt-out for 2022

b. Eligibility[vii]:
There are two pathways for a facility with emissions fewer than 100,000 tonnes of CO2e per year to opt-in to TIER:

• Pathway 1 - Direct Competition: The intention for allowing these facilities to opt-in to the Regulation is to address situations where facilities with less than 100,000 tonnes of CO2e compete directly with larger facilities that are automatically subject to the Regulation. Without opting-in, these smaller facilities could face higher per unit carbon cost, impacting competitiveness. If the facility produces a product listed in Table 1 from the TIER Opt-in Fact Sheet, it is eligible to opt-in.[viii]
• Pathway 2 - EITE Facilities: Facilities that belong to an EITE sector as defined in Section 4(1)(a) of TIER and had total regulated emissions of 10,000 tonnes in any year since 2017 or is expected to exceed 10,000 tonnes in its third year of commercial operation are eligible to opt-in. Table 2 from the TIER Opt-in Fact Sheet provides a list of EITE sectors that include at least one facility that met or exceeded the 10,000-tonne CO2e threshold.[ix]
  

​Renewable electricity facilities are also eligible to opt-in, unless any of the following criteria applies to the facility[x]:

1. The facility has a total nominal capacity of less than 5 megawatts.
2. The facility has entered into a renewable electricity support agreement under section 7(4) of the Renewable Electricity Act.
3. An economic benefit is being provided under a program or other scheme that is attributable to the electricity produced at the facility having been produced from a renewable energy resource 

Stay up to date on Carbon Pricing
Carbon Pricing in Canada is evolving.  There are current constitutional challenges against the federal GGPPA which may impact what rules apply to your business.  Additionally, consider that while TIER is the current carbon pricing regime in Alberta you may be subject to the GGPPA if you fail to opt-in.
 
It is beneficial to understand the applicable rules on carbon pricing.  There are legal and business implications depending on what rules you are subject to.  For more information on carbon pricing obligations and your business, it’s a good idea to consult with a qualified lawyer.
 
For more information on TIER and how it works, visit:
https://www.alberta.ca/technology-innovation-and-emissions-reduction-regulation.aspx
 
For more information on the GGPPA and how it works, visit:
https://www.osler.com/en/resources/regulations/2015/carbon-ghg/canadian-government-carbon-and-greenhouse-gas-legi
 
Bradley Mills is a member of the BLG Business Venture Clinic and is a third-year law student at the Faculty of Law, University of Calgary.

REFERENCES:
[i] Norton Rose Fulbright, “Climate change and Canadian federalism: examining the constitutional dispute sparked by Parliament’s Greenhouse Gas Pollution Pricing Act”, online at: <https://www.nortonrosefulbright.com/-/media/files/nrf/nrfweb/knowledge-pdfs/climate-change-and-canadian-federalism.pdf?la=en-ca&revision=>
[ii] Technology Innovation and Emissions Reduction Regulation, 2002, (Alberta) online at: <http://www.qp.alberta.ca/1266.cfm?page=2019_133.cfm&leg_type=Regs&isbncln>
[iii] Government of Alberta, “Technology Innovation and Emissions Reduction Regulation, Information for industry on Alberta’s approach to reduce emissions from large industrial emitters”, online at: <https://www.alberta.ca/technology-innovation-and-emissions-reduction-regulation.aspx>
[iv] Ibid.
[v] Government of Alberta, “TIER Regulation Fact Sheet”, online at: <https://www.alberta.ca/assets/documents/ep-fact-sheet-tier-regulation.pdf>
[vi] Government of Alberta, “TIER Opt-In Fact Sheet”, online at: https://www.alberta.ca/assets/documents/ep-fact-sheet-tier-opt-in.pdf
[vii] Ibid.
[viii] Ibid.
[ix] Ibid.
[x] Ibid.