Monthly Archives: October 2014

Personal Guarantees for Corporate Loans

Michelle explained in an earlier post that many small business owners choose to incorporate their business to protect themselves from personal liability from the obligations of the business. The corporation has its own separate legal identity from the corporation’s directors and shareholders. For example, a supplier can demand payment for unpaid goods from an incorporated business but not directly from the directors of that business. The corporation has the obligation, not the corporation’s directors or shareholders. The corporation’s directors and shareholders are protected behind the “corporate veil.”

There are times, however, when the corporate veil is pulled aside and the directors or shareholders (or both) can be made liable for the corporation’s obligations. One such instance often occurs when a small, closely-held corporation needs to borrow money from a bank.

Banks are well aware that a corporation and its directors have separate legal identities and, therefore, if a corporate borrower fails to pay its loan back, the bank has no legal ability to demand payment from the directors and shareholders. It will come as no surprise that an ingenious workaround has been developed to ensure that banks can get their money back; it’s called the personal guarantee.

In addition to other security a bank may demand (such as a mortgage on corporate real property or a security agreement on corporate personal property such as equipment or inventory), the bank may require a personal guarantee. That is, the bank requires someone (the “guarantor”) to guarantee the loan, in the event that the corporation fails to pay the loan back (although the bank usually doesn’t need to wait until the corporation defaults to seek payment from the guarantor).

These guarantees strip away any protection that the individual person would have otherwise had against this financial obligation of the corporation. Signing a personal guarantee for a corporate loan is a personal acceptance of that corporate obligation and represents a significant legal and financial decision for the guarantor.

In Alberta, the government wants to ensure that people who sign a guarantee fully understand the nature and effect of the document. As such, we have provincial legislation called the Guarantees Acknowledgement Act that governs the proper signing of these guarantees. The Act requires that a Notary Public personally meet with the person who has signed the personal guarantee and confirm that the person is aware of the contents of the guarantee and understands it.  A certificate confirming this is completed and attached to the personal guarantee.  The certificate is intended to demonstrate that the guarantor has accepted the obligations knowingly and willingly.

The decision to personally guarantee your corporation’s loan is a significant financial, legal and personal decision. At Patriot Law Group, we can answer the legal questions you might have about running your small business, including questions about personal guarantees.

 

Small Business Week – Some Employment Law Tips

In honor of Small Business Week, this week’s post is focused on a common business law issue:  employment.

One of the most common employment law questions (and an area where there is some general misconception) relates to termination of employees.

The remainder of this post is focused on employment in Alberta that is not subject to other federal or other specific legislation and that does not involve a unionized workplace.

There are two main sources of law that govern employment situations in Alberta.   These are:

  1. Statutory Law.  This is the legislation that governs employment practices in Alberta. The main (but not the only) statute that relates to employment law is the Employment Standards Code (“the Code”).  The purpose of this legislation is to set minimum standards which all employers and employees must adhere to. For example, the Code sets out minimum periods of notice on termination, what benefits must be paid to employees on termination, rules related to overtime, and many other matters. What is important to note is that the Code is focused on employee protection and statutory minimums.
  2. The Common Law. This is judge-made law that has developed historically and operates in tandem with the Code. It addresses matters that are not specifically dealt with in the Code (such as determining what is “just cause” for termination). It also addresses matters that are dealt with in the Code, primarily by adding to the statutory minimums in certain circumstances. This is most commonly an issue in the context of reasonable notice of termination. That is, while the Code may provide for a minimum period of notice, the common law will often increase the notice requirement, depending on the circumstances.

There can be other laws that will relate to a particular situation, such as those relating to the protection of human rights and the prohibition of discrimination (like the Alberta Human Rights Act),  and workplace health and safety.

On the issue of termination, a common misconception is that an employer requires “just cause” to terminate an employee’s employment.  This is not accurate.  Generally speaking, an employer can terminate an employee’s employment at almost any time for almost any reason (subject to some very specific exceptions, such as those related to discrimination on a protected ground, such as disability), provided that the employer provides “reasonable notice” (or pay in lieu of reasonable notice).    If an employer has “just cause” however, then the employee may generally be terminated without notice, or pay in lieu.

Whether or not any particular conduct amounts to “just cause” is not always certain and legal advice should be sought on this issue before proceeding with a termination on this basis.

Similarly, what amounts to “reasonable notice” is not an exact science.    This must be at least the amount required by the Code.  However, unless the employment contract restricts the amount of reasonable notice to this minimum amount, a larger amount of notice may be required pursuant to the “common law” discussed above.  If matters are litigated, courts will look to such factors as the age of the employee, the length of service, the nature of the employment, the availability of similar employment, and the experience and training of the employee.

So, some useful tips to keep in mind relating to employment include the following:

  1. Have a written employment contract.  The best way to ensure that both employee and employer are clear on the terms of employment is to have a contract in writing.
  2. Reasonable Notice Requirements.  If the employment contract is intended to limit “reasonable notice” requirements to the mandatory Employment Standards Code minimums, this needs to be clearly set out in the employment contract.
  3. Keep detailed records.  Both employees and employers should keep detailed records about such things as:  vacation taken, pay raises, changes to employment duties, counseling related to performance, etc.
  4. Seek Legal Advice before taking action.   If you have questions about an employment law matter, we may be able to assist.  Feel free to contact Patriot Law Group.

 

 

What to look for in a lawyer for your business

If you have – or want to have – a thriving business, sooner or later you are going to need some help from a lawyer.  Perhaps you are buying into an existing business, or setting up your own business.  Maybe you have an existing business and are borrowing money to expand.

When you do need legal services for your business, you should give some consideration to the skill sets and aptitudes of your lawyer.  Here is our list of what to look for when you want to hire a lawyer to deal with your business issues:

  1. Knowledge of the different forms of business organization.  Businesses can be organized in diverse ways such as  corporations, partnerships, sole proprietorship. Your lawyer can explain what each of these mean and their advantages and disadvantages in various business contexts.
  2. Knowledge and skill in related legal areas.  Business law touches on a variety of different areas of the general law including contracts, real property law, personal property security, bankruptcy, tax, trust law, employment law, and so on.  A multi-disciplinary approach to business issues adds real value.
  3. Skill in drafting, interpreting and explaining business agreements.  Agreements are everywhere in the business world, and a business person proceeds at his or her own risk when signing documents.  You can better manage the risks by ensuring that you really understand what you are agreeing to.  It’s too late once the agreement is signed.
  4. Attention to detail.  Among the skill sets of a good business lawyer is the ability to focus on the fine print.  Because it’s there, the fine print is important.  You need to be able to rely on your lawyer to understand all of it in its proper context and explain it to you.
  5. Comfort and familiarity with business.  You want a lawyer who speaks and understands the language of business.  Many lawyers are business people themselves, and have a familiarity with many of the practical issues that arise for the business owner.
  6. A sense of what is practical.  This is related to the previous point.  Even though a course of action may be possible from a legal perspective, it may nevertheless not be practical.  For example, it may be possible to sue someone who does not pay you for the services you provide, but it may not be practical to do so for a wide variety of reasons.
  7. People skills.   Above all, you need to be able to connect with your lawyer on a personal level.  She or he needs to be able to hear what you are asking, be interested in what interests you, and discuss issues with you at a level with which you are comfortable.

At Patriot Law Group, we think our team of lawyers is well positioned to meet and exceed our clients’ expectations in all of these areas.

What’s in a (corporate) name?

Juliet:
“What’s in a name? That which we call a rose
By any other name would smell as sweet.”

Romeo and Juliet, Act II, Scene II

Juliet gazed at the starry sky, lamenting that her Romeo was a Montague, a hated name in her family. Why couldn’t he have been Romeo Jones or Romeo Gallagher? Juliet discovered the fundamental truth that all business owners know: names matter.

Let’s say Joe Blow is going to incorporate a company. What should he call it? The question is more than just a matter of personal taste. There are legal considerations involved. In Alberta, every corporate name needs three elements: a distinctive element, a descriptive element and a legal element.

The distinctive element is the part of the name that individualizes the company from other like companies.

The descriptive element is the part of the name that defines the nature of the company’s business.

The legal element indicates that the business is incorporated and not a natural person or a partnership. In Alberta, you usually see the words “Incorporated” or “Inc.”, “Limited” or “Ltd.” (or the French translations of those words).

So if Joe wants to name his newly-incorporated business that builds and services widgets, he could name his company “Blow Widget Services Ltd.”, where “Blow” is the descriptive element, “Widget Services” is the descriptive element, and “Ltd” is the legal element.

What if Joe is a professional, like an accountant or a dentist? If Joe is incorporating a company as a member of a regulated profession, he could call his company “Joe Blow Professional Corporation.” He also has the option of including a professional descriptor within the name, so that the name might be “Joe Blow Chiropractic Professional Corporation” or “Joe Blow Dental Professional Corporation,” depending on his profession.

What if Joe doesn’t really need or want a special name for the company? For example, Joe decides to incorporate a company just to hold shares in other companies.  Joe also has the option to use a number as a name. When the corporate documents are sent to the registry agent, Joe requests the Registrar to assign a designated number to be the corporate name. Joe then ends up owning a company named “1234546 Alberta Ltd.”

You can see that Joe has a lot of choice in naming his company but there are limits to legally acceptable names. The regulations to the Alberta Business Corporations Act lay out prohibited names as well as prohibited affiliations. For instance, Joe’s corporate name can’t be profane or offensive.  Joe’s corporate name cannot suggest an affiliation with a government, a university, royalty,  or imply that it carries on financial services. So Joe can’t name his company “Province of Alberta Widget Services Ltd” or “Her Majesty’s Widget Services Ltd” or “Alberta Savings and Loan Widget Services Ltd.”

Joe must also be careful that his name does not create the potential for confusion with the public by naming his company something that might sound like an existing company. For example, if Joe’s brother Moe already runs “Blow’s Widget Service and Repair Inc.”, Joe shouldn’t name his company “Blow Widget Services, Ltd” because it might confuse customers as to which company they’re dealing with. If Joe isn’t careful with the corporate name, he could get sued for the tort of passing off  (which is misrepresenting your goods and services as another’s).

With this sad eventuality, we would look at the owners of the two competing Widget businesses and conclude: “Never was there a story of more woe / Than this of Joe and his bro Moe.”

Patriot Law Group provides legal services to small businesses – but we’re not very good at poetry.

 

 

 

Provincial Court vs. Court of Queen’s Bench: What’s the Difference?

This is a follow up to our Facebook post earlier this week about the increase in the value of claims that may be decided by the Provincial Court (Civil) of Alberta (sometimes referred to as “Small Claims” Court). If you saw that post, you may know that the Provincial Court civil claim limits have increased from $25,000 to $50,000.

However, you may also be curious about some of the key differences between the Provincial Court of Alberta and the Court of Queen’s Bench of Alberta. The purpose of this post is to highlight some (but by no means all) of the differences.

Provincial Court of Alberta – Some Things to Know

  • The Provincial Court of Alberta  is created by the Provincial Court Act of Alberta. This statute confirms the Court’s jurisdiction. Unlike the Court of Queen’s Bench (which is a Court of general jurisdiction), the Provincial Court can only hear and decide matters that fall within the scope of its jurisdiction as outlined in the statute.
  • As outlined above, for civil matters, the Court can only deal with claims up to $50,000 in value.
  • The Provincial Court of Alberta has the power to deal with criminal, family and civil matters.
    • The judicial officials in the Provincial Court are “Judges” and are addressed as “Your Honour” (Sir or Madam are also acceptable).
  • In the Provincial Court, a party can represent him or herself, be represented by a non-lawyer agent, or by a lawyer.
  • The Alberta “Rules of Court” do not need to be followed in the Provincial Court.
  • Many, but not all, family law matters can be dealt with in the Provincial Court. For example, the Provincial Court cannot grant a divorce judgment, an adoption order, or an order for the exclusive possession of a family home.
  • Decisions of a Judge of the Provincial Court may, in most cases, be appealed to a Justice of the Court of Queen’s Bench.

The Court of Queen’s Bench of Alberta – Some Things to Know

  • The Court of Queen’s Bench of Alberta , being a court of general jurisdiction, has the ability to hear and decide all matters that are not expressly excluded from its jurisdiction. This includes criminal, civil and family law matters.
  • In the Court of Queen’s Bench, the judicial officials are: “Justices” who are addressed as “My Lord” or “My Lady” (Sir or Madam are also acceptable); or “Masters”, who are addressed as “Master” (Sir or Madam are also acceptable).
  • Whether a matter will be heard before a Justice or Master depends on the nature of the decision to be made. Justices can deal with all matters. Masters deal mostly with procedural and other specialty matters (such as foreclosures or bankruptcy).
  • In the Court of Queen’s Bench, a party can represent him or herself, or be represented by a lawyer. A party cannot be represented by a non-lawyer agent. However, note that corporations cannot represent themselves and must have a lawyer.
  • The Alberta “Rules of Court” are required to be followed in the Court of Queen’s Bench.
  • The Court of Queen’s Bench has the power to deal with all family law matters, including granting a divorce judgment, an adoption order, or granting an order for exclusive possession of a home.
  • Some civil remedies (such as injunctions) are only available in the Court of Queen’s Bench.
  • Decisions of a Justice of the Court of Queen’s Bench may be appealed, in most cases, to the Court of Appeal of Alberta.

The above is just a short list of some of the key differences. There are many. If have a legal matter and you are thinking about representing yourself or you are unsure about what Court would be appropriate, contact us. In addition to providing comprehensive legal services in either Court environment, we offer limited scope (often called “unbundled”) legal services which allow parties to represent themselves with flexible amounts of help