Click here to bookmark Clausehound and search for clause/contract language

Choose from our expert-compiled document frameworks and customize from a vast library of clauses.

What voting rights do non-voting shareholders have?

A common question that entrepreneurs/inventors have when incorporating is how to structure the business. The options for structuring a business can be overwhelming, especially when it comes to determining the number of share classes to include in your corporation. Generally, founders will initially want to issue shares to themselves, their investors, and certain employees.

 

This share issuances will typically governed by a shareholders’ agreement and, if necessary, an employee stock option plan (ESOP).

Why employees, you ask?

Offering employees (or contractors) an option to purchase shares from the start of the company incentivizes employees to grow the company as if it’s theirs. It also works as a retention tool – encouraging the employee to stay with the company long-term.

 

What kind of shares should you issue to your employees?

Businesses usually issue non-voting shares to its employees. Issuing shares proves to drive the performance of employees, but founders still want to maintain control over critical decision-making for the business.

Source

 

Are non-voting shares really non-voting?

Although called ‘non-voting shares’, there are certain situations where the legislation under which the corporation was incorporated will give non-voting shareholders the right to vote.

 

For example, Sections 170(1) and (3) of the Ontario Business Corporations Act (OBCA) states that non-voting shareholders may vote on resolutions to amend the corporation’s articles of incorporation if the amendment is related to:

 

  • Changing the maximum number of authorized shares of the non-voting class;

  • Changing the rights, privileges, restrictions or conditions attached to the shares of the non-voting class, or equal to or greater than the non-voting shares class;

  • Changing restrictions related to the issue, transfer or ownership of the shares of the non-voting class;

  • Increasing the maximum number of authorized shares of a class having rights or privileges equal to or greater than the non-voting shares class;

  • Exchanging, re-classifying or cancelling shares in the non-voting class;

  • Creating a new class of shares equal to or greater than the non-voting share class; or

  • Allowing a class of shares to be exchanged for the non-voting class shares.

They will also be able to vote on proposed amalgamations that will affect their share class. In short, non-voting shareholders will have a right to vote on resolutions that will have an impact on the rights attached to their share class (but not necessarily on all resolutions that will have a business impact on them as shareholders). The reasoning behind these exceptions is to prevent the voting shareholders from impairing the rights of the non-voting shareholders, and to prevent the voting majority from oppressing the non-voting shareholders in this way.

 

To view a sample articles of incorporation, click here!

 

–  –  –

This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

What you don't know can hurt you! Subscribe to stay informed.

Sign up now and receive an email when we publish new content.

We will never give away, trade or sell your email address. You can unsubscribe at any time.

Read more...

Sign This or Lose Your Job! Can My Employer Really Do This?

The Employee’s Perspective

Imagine coming to work one day and being told by your employer that you have to sign a contract that changes the terms of your employment (for the worse) or be fired. Sounds like a nightmare, right? Can your employer really do this? Like many legal questions, this one has both a yes and no answer.

For a contract to be enforceable, the law requires consideration to pass between the parties. The idea is that a ‘promise’ is not binding unless you have received something in exchange for the promise. The consideration can be almost anything, and because the requirement is easily satisfied, it is easily overlooked.

Suppose that things have not been going well at work. The employer has good reason to fire you, and has been considering whether or not to ’let you go’. At this point, you are offered a new (likely less favourable) contract and are told that you will be let go, but they are willing to give you another chance under different work conditions.  Because you are accepting new terms of employment in exchange for not being fired anyway, you have received consideration for the contract, and it would likely be enforceable.

Suppose though that things have been going well, and the employer has not been considering whether to fire you. You are given a new contract that changes some aspect of your job (for the worse) and told you must sign it. You sign it and keep working. Just keeping the job you already have (and are legally entitled to keep) is not consideration for the new contract, and according to the Ontario Court of Appeal, the new contract might not be enforceable even though you signed it.[1]

Sign this or Lose

 

The Employer’s  Perspective

You have employees you like, and things are going well, BUT things change. For example, your clients have required you to have all of your employees sign a tight confidentiality agreement with a non-compete clause; or your accountant mentions that you need to rearrange payment schedules in order to avoid onerous tax consequences; or you need employees to cover the work of an employee who has left so you require your employees to sign a new agreement.

One problem is that unless you give the employees something new in exchange for signing, the agreement might not be enforceable. Just continuing to be employed is not enough. You will need to give them a signing bonus or promotion, or other form of consideration.

 

Can the Employee Be Required to Sign?

Because every employment situation is different, there is no blanket answer to this question. If the original employment contract is carefully drafted however, the employer can increase the chances that an employee can be required to sign further agreements without triggering a constructive dismissal claim.

One thing the employer can do is to include a clause in the employment contract that anticipates (and possibly describes) possible changes to the employment relationship, and which states that the employee accepts such potential changes.

 

The Bottom Line

If the original employment contract anticipates changes to the terms of employment and requires you to execute further documents; your employer offers you some consideration for signing a new contract; you agree to sign the contract; and you work under the new terms of employment, you will likely be bound by it.

That is of course, unless other circumstances make the contract unenforceable…

 

Takeaways

  • care should be taken not to trigger a ‘constructive dismissal’
  • employers can include language in an employment contract that anticipates future changes to the employment relationship
  • employees should receive Independent Legal Advice before signing, and employers should make sure the employee has had the opportunity to do so
  • when new agreements  are presented to an employee for signing, new consideration must be given such as a promotion or signing bonus

[1] Hobbs v.

TDI Canada Ltd., 2004 CanLII 44783 (ON CA) http://www.canlii.org/en/on/onca/doc/2004/2004canlii44783/2004canlii44783.html?resultIndex=1 Note that this blog does not deal with the difficult question of constructive dismissal.

 

–  –  –

This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

What you don't know can hurt you! Subscribe to stay informed.

Sign up now and receive an email when we publish new content.

We will never give away, trade or sell your email address. You can unsubscribe at any time.

Read more...

Legal Tips and Tricks: Prepping Your Contracts for Acquisition

A critical part of a company acquisition is ensuring that the transaction is not missing any of the consents required of the contractual counterparties.   Deficiencies in some or all of these points can lead to the loss of key assets or to an uncomfortable transition for all concerned.

All counterparties should make sure they consider the four scenarios that are set out below.

1.       Employment:  earn out/”golden handshake”

Acquirers should consider the effect of a change of control transaction on employment agreements.  Upper management will sometimes build in a “golden handshake” or “golden parachute” clause into their employment contract that requires that, if the contract is terminated shortly after a change of control, salary and benefits will continue for an additional 1 or 2 years.   Contracts containing this clause should be considered by the acquirer as it could affect the acquisition value of a transaction.

2.        Employee stock options:  accelerated vesting/terminated vesting

Employees whose shares are vesting should read the terms of their option agreement carefully to determine the effect of a change of control transaction.  The shares could accelerate into immediate vesting in a generous agreement.  Some option agreements will provide for immediate vesting should the employee be terminated within a few months of a change of control, to provide the option-holder with some comfort that their position will not be made redundant and to keep the share capitalization clean.  Conversely, in other cases, where such protections do not exist, the existence of potential vesting can be a consideration on which employees are to be made “redundant” – if it means a cleaner acquisition with fewer shareholders or potential shareholders.  Employees who are vested should consider exercising options if they believe that the company is appreciating in value and if they are facing the possibility of losing their options upon termination of their employment agreement.

3.       Leases

Lessors of equipment or office space will almost always require that the vendor in an acquisition seek written consent from the lessor prior to assignment of the lease to the acquiring party.  Failure to receive consent can be dealt with by an automatic acceleration of the payments required (for example under office equipment).  An office lessor can “deem” that a change of control is to be treated as a request for sub-letter, which, in an especially onerous agreement, could give the lessor the right to repossess the unit for its own purposes.  A lessor should agree that a lease can be assigned with written consent, “such consent not to be unreasonably withheld”.

4.       Ownership/transfer of personal information

All counterparties should carefully review the company privacy policy to ensure that site visitor/subscriber/customer names and accounts are assignable to the acquiring entity, upon change of control.  A savvy company will ensure that this right of transfer has been included in the Privacy Policy, website terms of use or customer terms of service.  It is prudent to ask for all past and present versions of any existing privacy policy/user agreements, as the agreement that customers/users/subscribers are subject to is presumably the agreement that was current at the time of (in the case of a customer) initial sign-up.

 

–  –  –

This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

What you don't know can hurt you! Subscribe to stay informed.

Sign up now and receive an email when we publish new content.

We will never give away, trade or sell your email address. You can unsubscribe at any time.


Read more...

Confidentiality: Duties of Your Independent Contractors

Links from this article:
Read the article here.

The article discusses a recent case out of Massachusetts which held that, as a matter of law, in the absence of a confidentiality agreement (or a formal confidentiality policy), an independent contractor was free to disclose a company’s trade secrets, including customer names, pricing information, business processes and work flow patterns, information about business relationships with other companies, and accounting records. While this may be covered at common law in employment relationships, that duty of confidentiality may not extend to contractors. The article provides a strong reminder that drafters of independent contractor agreements may want to include provisions to protect the property of the company.

All too often, independent contractor provisions fail to address critical topics (e.g., confidentiality and intellectual property ownership issues).

Read the article here.

 

Take away:

Where a degree of a duty of confidentiality applies to an employee, the same may not apply to independent contractors. It would be prudent for an employer to ensure that all confidentiality terms are listed in the governing document of their relationship.

 

–  –  –

This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

What you don't know can hurt you! Subscribe to stay informed.

Sign up now and receive an email when we publish new content.

We will never give away, trade or sell your email address. You can unsubscribe at any time.

Read more...

Additional Rent Announcements API Approval of Terms Asset Purchase Agreement Background Intellectual Property Board of Directors Business Case Law CASL Clausehound Collaboration Commercial Lease Confidential Information Confidentiality Consulting Agreement Contract Drafting Contract Negotiations Corporation Costs and Expenses CPD Definition of Intellectual Property Dispute Resolution Distribution Agreement Employee Employment Employment Agreement ESOP Events Farming Law Generally Used Clauses Grant of Licence Handling of Confidential Information Indemnity Independent Contractor Independent Legal Advice Informal Discussions Intellectual Property Intellectual Property Transfer Investor Journey Licence Restrictions Limitation of Liability Long Form Marriage Contract Master Services Agreement NDA Non-competition Not for Profit Articles of Incorporation Notice of Arbitration No Waiver Obligations Ownership of Intellectual Property Ownership of Work Product Parties Partnership Privacy Policy Product Sales Agreement Purpose Representations and Warranties Restrictive Covenants Safeguarding Requirements Settlement Agreement Shareholder Agreement Software Development Start-up Subscription Agreement Technology Termination Term Sheet Terms of Use Trademark Registration Transfer of Intellectual Property Waivers and Releases Website Terms of Use
Show All Tags