A Corporation is a type of organization through which an individual can operate a business. Other examples include a sole proprietorship, a partnership and a limited liability partnership, among others. A corporation is a unique business structure in that the shareholders/owners of the corporation and the directors/management can be complete separate groups, although they are often one and the same, especially for private held/family owned businesses.
There are many benefits of incorporating a company. Firstly, a corporation is considered a distinct legal entity in Alberta. This means that a corporation can borrow money, enter into contracts, and sue and be sued. This allows an individual to pursue a business venture without entering into the contracts themselves or incur liabilities personally. If the business fails, your personal losses would be limited to your initial investment in the company. Forum Law LLP’s team of corporate lawyers can assist with all aspects of incorporation, corporate law matters, and corporate disputes/litigation. The following are a list of common corporate law issues:
If I incorporate, am I protected from any personal liability whatsoever?
There are exceptions to the rule of limited liability. In Alberta, a Director of a corporation can be found personally liable for certain corporate liabilities such as CRA/tax debt, employee wages (up to 6 months in Alberta), funds diverted for personal gain (corporate looting) or declaration of dividends when the corporation cannot reasonably expect to meet its debts, or is insolvent.
An individual can be held liable if they have personally guaranteed the debts of the corporation. Personal guarantees are commonly requested from banks and landlords, especially when the corporation is relatively new or not carrying any substantial assets. In Alberta, under the Guarantees Acknowledgement Act, a guarantee must be signed before an Alberta lawyer, who will sign a Guarantees Acknowledgement Act certificate certifying that the guarantor has appeared before them, and is satisfied that the guarantor has read and understands the nature of a guarantee. Forum Law LLP’s Edmonton lawyers can meet with you to sign personal guarantees on your behalf.
In Alberta, A court can disregard the distinct legal identity of a corporation (piercing the corporate veil) and find legal liability on a shareholder, if it was determined that the corporation was established for purely improper or fraudulent purposes.
If you are in Edmonton and are concerned about incurring personal liabilities of your business, or need advice on commencing an action against a director or shareholder, contact Forum Law LLP today.
I am a minority shareholder and the Majority Shareholders are looking out for their interests only, what can I do?
The Alberta Business Corporations Act sets out the rights of all shareholders in relation to Alberta corporations. Such rights include the right to view corporate records/financial statements, protection against actions of the majority shareholders that unfairly prejudice the minority (shareholder oppression), and the right to attend shareholder meetings. Speak to one of Forum Law LLP’s team of Edmonton-based lawyers if you need advice on protecting your rights as a minority shareholder.
The best course of action one can take to protect their rights as a minority shareholder is to enter into a Unanimous Shareholder Agreement (“USA”) with the other shareholders. A USA is an agreement that sets out the rights and responsibilities of all shareholders, determine what percentage of votes are required to pass certain resolutions on certain major company decisions, and sets restrictions or requirements on the transfer of shares/buyouts so that the parties have an exit strategy. Forum Law LLP’s team of Edmonton corporate and commercial lawyers can help with review, preparation and negotiation of a USA on your behalf.
