Unique Regulatory and Governance Challenges Faced by Startups

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.
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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.
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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:

• directors, officers, and employees of the company;
• family, friends, and business associates (as narrowly defined under Canadian securities law); and
• accredited investors (individuals with significant financial resources).[1]

This small pool of eligible investors means founders may raise less capital, spend more on legal compliance than on product development, or take risky shortcuts that expose them to liability later down the road when they try to sell or go public. This may present obstacles to the entrepreneurial energy that Canada aims to foster.

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