10 key legal commands for your start-up

Entrepreneurs: don’t make these basic legal mistakes!

Lex Start presents to you 10 golden legal rules so that you can focus on your projects and partnerships without comprising the success of your start-up.

1. The legal status of the co-founders, you’ll clarify.

Due to the excitation and the feeling of trust that surrounds the launch of a company, entrepreneurs often forget to put on paper the status, the rights and the obligations of the co-founders of their start-up. However, this is the ideal moment to clarify the situation of co-founders in order to prevent a lot of confusion and to settle disputes that can arise between co-founders during bad times.

2. An adapted legal form for your business, you’ll choose.

A sole proprietorship, a corporation, a limited partnership, etc: these terms designate different legal forms one can choose to run a business. Legal implications arise from operating a business in one or the other of these forms.

Read also: To incorporate or not to incorporate: that is THE question

For example, let’s underline that operating a corporation creates a legal distinction between the entrepreneur and the company. A corporation can also attract investors by issuing them shares. Running a sole proprietorship also has its perks because it requires the completion of fewer management formalities and allows the entrepreneur can deduct certain business expenses on his personal tax return.

A limited partnership can also be an interesting option for an enterprise that wants to combine the advantages of a corporation and those of a sole proprietorship. Indeed, a limited partnership can receive the financial contribution of sponsors but still be taxed as an individual.

In short, given the differences between these business legal forms, it is important that an entrepreneur consults a lawyer to help him identify the form that best fit his business model. Consult the directory of our lawyer partners.

3. A shareholder agreement, you’ll conclude.

You decided it is best to incorporate your business? Great. If your corporation is composed of more than one shareholder, you might want to conclude an agreement with the other shareholder(s).

A shareholder agreement puts on paper the rights and obligations of each of the shareholders involved in a corporation. If a shareholder wants to depart from his shares, how will he be able to do so? Will shareholders be able to transfer their shares to third parties? The shareholder agreement will, notably, answer these questions.

Read also: A shareholder agreement: for the better but (mainly) for the worse

4. The restrictions on the issuance of shares, you’ll respect.

If you decided to run a corporation, you have to ensure that your newly constituted corporation respects the Securities Act. Indeed, there are two types of corporations: private companies and public companies.

Public companies are subjected to the Securities Act, which imposes restrictions, notably, on the issuance of shares and the disclosure of business information.

Companies that do not want to be subjected to the provisions of the Securities Act must remain private companies. That forces them to issue shares to certain categories of investors. Amongst others, private corporations can issue shares to the parents of their directors, their officers, and their co-founders.

Thus, entrepreneurs must be careful when issuing shares so that they don't become, despite themselves, subject to the Securities Act. When in doubt regarding your company's subjugation to the Act, consult a lawyer.

5. The laws related to your business line, you’ll respect.

Certain legal procedures are common to most entrepreneurs starting a business. However, the laws a start-up will be subjected to can differ from a business line to another.

Indeed, if, for example, if you wish to open a bar, you’ll have to respect the requirements of the Régie des alcools, des courses et des Jeux and the provisions of the Act Respecting Liquor Permits. Failure to respect such requirements can lead to sanctions and penalties.

It is important to consult a lawyer to ensure to be compliant with all the relevant regulations related to your business line.

6. Good basic contracts, you’ll get.

While running your start-up, you'll collaborate with employees, service providers, distributors, and clients. That is why getting customizable basic contracts will save you a lot of time and resources and will allow you to run your business more efficiently. While you’re at it, consult our kit of contracts.

7. Your creative genius, you’ll protect.

Your creative genius gives additional value to your start-up. To make sure your company remains the sole owner of the product and the elements you and your team create, it is important to get adequate legal protection, whether it is with a patent, an industrial design, a copyright or a trademark.

Read also : Que faire après avoir crié « eureka »? (Article in French)

These terms don’t ring any bell? Don’t fret, Lex Start explained them for you.

Read :

  1. Tes dessins industriels, un gagne-pain? (Article in French)
  2. Tes creations, protége-les donc! (Article in French)
  3. Leave your (trade)mark!

8. A good business name, you’ll have.

The name of a company is an important part of its identity. It sends information to the public regarding the activities and the mission of the company. Certain legal requirements are associated with the choice of a company name.

Indeed, the name will be submitted to Quebec's enterprise Register. The name chosen shall not cause confusion with another company's name, shall not be indecent and shall respect the requirements of the Charter of the French Language if the company does business in Quebec.

If the company doesn’t comply with these requirements, the Register could refuse its name. To verify the compliance of your company’s name, consult the website of the Register and of Corporation Canada.

9. Legal mentions, your website will have.

Legal mentions designate the privacy policy, the general conditions of sale and the terms and conditions of a website. For start-ups that have a website, such policies allow them to explain how and why their clients’ personal information will be collected. The terms and conditions of a website explain how can users use your website.

Moreover, general conditions of sales can also be part of the legal mentions if a start-up sells products and/or services on its website. If that’s the case, the company will be able to mention if it deliver its products and explain if it accepts exchanges or reimbursement.

Such mentions allow a start-up to limit its liability with regards to the use of its website. After having published your legal mentions, make sure to periodically update them.

10. Good internal policies, you’ll have. 

As a start-up grows, it recruits more people. Adopting internal policies may be interesting to make sure all the members of the team obey the same rules. The rules can pertain to social media use or confidentiality obligations. However, to ensure that these policies are in compliance with the law in Quebec and in Canada, it is best to consult a lawyer.

 

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