Category: Corporate Law

How To Prepare For Changes In A Shareholder’s Life Circumstances: Buy-Out Clauses

A shareholders’ agreement often includes the framework within which the business relationship will be governed. It can also provide mechanisms to address the dissolution of that relationship. This entry complements our previous blog on provisions by which shareholders or the corporation, can force a share transfer.

Disability, Death, or Insolvency of a Shareholder

An individual shareholder’s demise, insolvency or general inability to carry out his or her duties can be challenging for the remaining business partners. A shareholders’ agreement can provide that the remaining shareholders, or the corporation itself, are obliged to purchase the shares previously held by the affected shareholder or by his or her estate, and can set out the payment terms for the transaction. It can also include life insurance provisions, pursuant to which the insurance proceeds can be applied to payment of the purchase price.

Valuation Mechanism

Shareholders’ agreements will typically provide a mechanism by which to determine the fair market value of the shares at a given point in time. Provisions of this type can help avoid disputes as to value and as such are particularly helpful should the business relationship become less than amicable.

Transfer Restrictions

The shareholders’ agreement can restrict individuals or legal persons to whom or to which a shareholder may transfer his, her, or its shares. Provisions of this nature help ensure that the remaining shareholders have a means by which to control those with whom or with which they are business partners.

There are a variety of provisions that can be used in shareholder agreements to govern shareholder buyouts or provide for the sale of a company in the event of unforeseen circumstances that end the relationship between shareholders. To further discuss these provisions or other aspects of shareholder agreements, please contact Elisabeth Colson, senior corporate lawyer at Devry Smith Frank LLP. You can reach her directly at (416) 446-5048 or by email at lisabeth.colson@devrylaw.ca.

“This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.”

By Fauzan SiddiquiBlog, Corporate LawApril 26, 2021July 5, 2023

COVID-19 and Collecting Personal Information

The COVID-19 pandemic changed the way people do business. For many businesses, government regulations currently require operators to record the name and contact information of every person who enters the establishment and to maintain these records for at least one month. The purpose of this is to assist with contact tracing should a COVID-19 outbreak occur at an establishment. For other businesses, collecting personal information is a by-product of increasingly doing business online.

Business owners must be aware of the implications when collecting this sort of private information and the laws that govern its collection. In particular, the federal Personal Information Protection and Electronic Documents Act SC 2000, c5 (PIPEDA), sets the ground rules for handling personal information in the course of commercial activities. This act applies whether businesses are collecting personal information in person or online.

The following are best practices that businesses should adopt in order to be compliant with PIPEDA and other applicable privacy laws:

Understand and identify the purpose for collecting private information. Do not collect more information than is necessary.
Adopt privacy policies and procedures that set out the reason for collecting information, the length of time the information will be stored and its destruction procedure. Do not collect any information contrary to these procedures.
Appoint someone to be responsible for privacy issues.
Make information about your privacy policies and procedures available to customers.
Inform customers of the purpose for collecting this information and obtain consent.
Keep the information only for as long as is necessary and then destroy it using proper procedures.
Use proper safeguards when storing the information. Do not leave the information in plain sight and keep it safe.
Develop a simple and easily accessible complaint procedure. If a customer contacts you about a privacy concern, the customer should be informed about avenues of recourse.

If you have further questions regarding collecting personal information during the era of COVID-19 or regarding your obligations under Canada’s privacy laws in general, or if you require assistance in developing effective privacy policies and procedures, please contact Esther Abecassis, lawyer at Devry Smith Frank LLP at esther.abecassis@devrylaw.ca or 416-446-3310.

By Fauzan SiddiquiBlog, Corporate Law, COVID-19March 15, 2021March 15, 2021

Shareholder Disputes: An Overview of Three Procedures to Achieve a Business Divorce

While business partners will usually be totally optimistic at the time of start-up, it is important to provide for a solution to unresolvable disagreements. This post considers three different solutions by which business partners can go their separate ways. Each of these establishes a procedure whereby one shareholder can buy out the other shareholder(s) or force the other shareholder(s) to buy, or require the other shareholders to co-operate in a sale of all shares in the business.

1) Shotgun Provision

The “shotgun” is the most commonly used provisions in shareholder agreements and works best with two shareholders, although it can work with more shareholders. Under this provision, one shareholder presents another shareholder with an offer to purchase all of the other shareholder’s shares in the business at a specified price. The other shareholder then has two options:

i) sell all of the other shareholder’s shares in the business to the offering shareholder at the specified price; (or)

ii) buy all of the offering shareholder’s shares in the business at the same price.

This result is that the offering shareholder is either bought out or ends up owning 100% of the business. The shareholders’ agreement will usually, or should, set out all of the terms that will apply to any sale.

There are some potential disadvantages of shotgun provisions. First and foremost, they are not ideal if there is disparity between the economic strength of the shareholders. If one shareholder has considerably more financial means than the other(s), a shotgun provision can result in a situation where a stronger party can effectively force a weaker party to sell shares to the stronger party for consideration below market value. Another issue to be considered is where one of the shareholders has considerable operating knowledge about the business that might put the other partner, especially a passive partner, at a disadvantage by having to step into managing the business when they have no past experience or contacts with the customers or suppliers.

Furthermore, a shotgun provision may not be ideal in the early stages of a business. One party could choose to exit or force another party out before the business has gained much value. To avoid this, it is recommended that a provision be included in the agreement that states that the “shotgun” provision, or for that matter any similar provision, may not be exercised until after the business has been operating for a certain period of time, say three to five years.

2) Put option, with option to buy or cause sale of 100% of business

One alternative to the shotgun provision is to provide the shareholders with a ‘put option’. This enables a shareholder (an “Offering Shareholder”) to request that the other shareholder(s) purchase the shares owned by the Offering Shareholder at a price specified by the Offering Shareholder. If the other shareholder(s) decide not to buy the Offering Shareholder’s shares, the Offering Shareholder has the option to buy the shares owned by the other shareholder(s) or cause the sale of 100% of the shares of the company.

The advantage of this provision over the shotgun provision is that the Offering Shareholder cannot find himself forced to be the buyer. There is, however, still a risk that the other shareholder(s) may refuse to co-operate in a sale of 100% of the shares of the Company, however the agreement can contain penalties for refusal to co-operate.

3) Private Auction Provision

Under a private auction, one shareholder can require that all shares in the business be placed on auction. Only the shareholders can bid at the auction. A minimum starting price and minimum bid increments can be set. The auction continues until one shareholder’s bid is accepted by the other shareholder(s) or the other shareholder(s) do not respond with a higher bid.

Essentially this is a variation of the shotgun provision, that provides all shareholders with more control over the price at which shares in the business are ultimately bought or sold. The private auction also reduces the risk of stronger economic parties taking advantage of weaker economic parties because it increases the likelihood that a buyout will occur close to the market value of the shares.

Summary

There are a variety of provisions that can be used in shareholder agreements to govern shareholder buyouts or provide for the sale of a company in the event of a breakdown in the relationship between shareholders. To further discuss these provisions or other aspects of shareholder agreements, please contact Frank Shostack, senior corporate and tax lawyer at Devry Smith Frank LLP. You can reach him directly at 416-446-5818 or by email at frank.shostack@devrylaw.ca

By Fauzan SiddiquiBlog, Corporate LawDecember 17, 2020July 5, 2023

The Importance Of Legal Writing And How To Do It

There is perhaps no course in law school that is more important than Legal Writing. The reason is that legal writing is the central medium with which a lawyer communicates his or her work. The most brilliant legal mind will have a difficult time in the legal profession, if their writing skills are not on par with their ability to effectively read, research, analyze, and reason about the law and the facts of the case.

Effectively communicating one’s work is key at every stage of a lawyer’s career. As a student-at-law, it will be a daily task to report to a supervising lawyer on the research conducted that day, or to prepare the first draft of a Small Claims Court claim, or to present a summary of a file, or to write a blog for the firm’s website about a recent case. The successful performance of all of these tasks will depend on the legal writing skills of the student. If you can effectively communicate in written form, your reader will fully comprehend your analysis without having to retrace all of the steps you needed to take to get to your conclusion. You will save your supervisor time and effort, and you will establish yourself as a professional who is ready to excel as a lawyer.

At a later stage of the career, it will often be the client or the court composing the audience of the lawyer’s writing. The reports to clients, the drafts of contracts, and the pleadings submitted to court are a lawyer’s portfolio. To a large degree, they form the basis on which the lawyer’s ability will be assessed and judged. A lawyer’s reputation stands and falls to quite an extent with what they produce in writing. A pleading that wins over the court or a report to a client that presents the solution to their problem clearly and succeeds in guiding their action is the goal every lawyer works toward.

How can it be done?

The most important maxim for legal writing is this: begin with your main point. Legal writing is not about building suspense. Usually, someone comes to a lawyer for an answer, and they would like it straight away. They do not care to puzzle out the answer from a disorganized pile of information. Be clear, comprehensive, and concise in offering complete and correct information. Leave out irrelevant remarks that merely divert the focus of what is important. Keep your audience in mind when determining how much detail is required to make yourself understood. It can be helpful to remind yourself that you are attempting to advise, or persuade, as the case may be, and not to write a work of literature or poetry.

Secondly, take the time to edit what you have written, ideally more than once. Every mistake in spelling or grammar will make your reader stumble for a moment, pause, and perhaps reread the sentence. Such an interruption takes away the focus from the argument you were trying to make and it will inevitably leave the impression of a lack of care and, if repeated too often, of competence as well.

If flawless grammar and spelling are not what law school teachers commonly praise your work for, there is still hope. In the 21^st century, the technology exists to mitigate such deficiencies. Much of such software is free and user-friendly. Nevertheless, it may be good advice to attempt becoming comfortable with the vocabulary, style, structure, and tone of voice lawyers use daily. The obvious way to hone this skill is to read court decisions, legal journals, and other relevant and quality materials.

Of course, polished legal writing skills do not come overnight. Seize every opportunity to practice. If you get the opportunity to work under the supervision of an experienced lawyer and draft legal documents for him or her, make sure to read the final, edited product, so you can see what changes were necessary and what you can improve. If you are still in law school, do take a course on legal writing. It will without a doubt have a notable effect on your performance in every other class and on your proficiency as a legal practitioner.

By Fauzan SiddiquiBlog, Corporate LawDecember 10, 2020December 10, 2020

Ontario Introduces the Personal Real Estate Corporation (PREC)

On October 1, 2020, the Government of Ontario filed Ontario Regulation 536/20, Personal Real Estate Corporations (“Regulation 536/20”), under the Real Estate and Business Brokers Act, 2002, SO 2002, c 30, Schedule C (“REBBA 2002”). Regulation 536/20 allows realtors in Ontario to incorporate Personal Real Estate Corporations (“PRECs”) and establishes the regulatory framework with respect thereto. Realtors now join other professionals, such as medical doctors, lawyers and accountants, who are permitted to earn income through a professional corporation. This post provides an overview of Regulation 536/20 and addresses some of the potential benefits of a PREC to a realtor.

Regulation of PRECs

Pursuant to Regulation 536/20, a PREC must be incorporated under the Ontario Business Corporations Act, RSO 1990, c B.16. The PREC’s sole director, sole officer and the controlling shareholder must be registered under REBBA 2002, or exempt from registration, and must be employed by a real estate brokerage to trade in real estate. The PREC itself cannot carry on the business of trading in real estate other than by providing the services of its controlling shareholder to the brokerage. The PREC is only permitted to receive remuneration pertaining to trading in real estate from the controlling shareholder’s brokerage. Likewise, the controlling shareholder is only permitted to receive remuneration pertaining to trading in real estate from the PREC or from the brokerage by which the controlling shareholder is employed.

Benefits of PRECs

If used correctly, a PREC can assist a realtor with tax planning. Instead of all annual income being taxed at the realtor’s personal marginal income tax rate, income retained in a PREC will initially only be taxed at a corporate tax rate. Presently, the combined federal and Ontario personal income tax rate is over 53% on income over $220,000 whereas for Canadian controlled private corporations entitled to take advantage of the small business tax deduction, the current combined federal and Ontario tax rate is only 12.2% on income up to $500,000. Thus there is the potential for considerable deferment of taxes.

Retaining earnings in a PREC may allow for personal income to be “averaged” over several years. The real estate industry can be volatile and realtors are usually only paid on commission. As such, a realtor may have a sizeable income one year and less income in the following years. If one year results in particularly high earnings, those earnings can be retained in the PREC and paid out to the realtor over the following years, rather than being paid to the realtor by the brokerage in the year in which they were earned. This may result in the earnings being taxed at lower marginal income tax rates over several years. The realtor also has the option of being paid by the PREC through dividends rather than through wages, which may provide additional tax advantages.

The PREC also allows real estate agents the ability to income-split with the realtor’s spouse, child or parent, subject to the more comprehensive rules regarding tax on split income (which are relaxed for persons over age 65). Therefore, it may be possible to pay amounts from the PREC to those family members, who will presumably be taxed at a lower marginal tax rate than the realtor.

Is a PREC Right for You?

In order to take advantage of the benefits that a PREC can offer, proper planning is essential. A realtor must consider the extra administrative costs associated with incorporating and maintaining a corporation and weigh these costs against the potential benefits of a PREC.

To further discuss whether or not a PREC is appropriate for your situation or to learn more about incorporating a PREC, please contact Elisabeth Colson, a partner and the head of Devry Smith Frank, LLP’s Corporate Commercial Group, at 416-446-5048 or at elisabeth.colson@devrylaw.ca.

By Fauzan SiddiquiBlog, Corporate Law, Real EstateOctober 28, 2020November 30, 2020

The Baby Boom Shift: The Impact of An Aging Workforce, the Projected Big Business Transfers and the Millennial Changeover

The baby-boomer generation (those born between 1946 and 1964) represents a significant share of the Canadian population. While many within this category are opting to continue working well into what would traditionally be their retirement years, it appears that once they do retire, the resulting mass retirement will initiate an abundance of handovers of wealth and business ownership.

Transformation of the workforce as we know it is therefore on the not-too-distant horizon. An entire generation of baby boomers will depart the workforce, taking with them their talent, knowledge and industry familiarity, and potentially creating a talent gap.

Are we in a baby-boomer succession crisis?

A vast number of baby-boomer business owners do not have a succession strategy in place. At times, finding a successor can be challenging. As a result, what could be deemed as an undesired consequence becomes unavoidable, and the business may have to be dissolved. Should this occur with any degree of frequency, it could have a significant negative impact on the Canadian economy as a whole.

Planning ahead

Several small business owners depend on the sale of their business as a source of retirement income. Preparing for a smooth and efficient transition is therefore as important as the day-to-day operation of the business. This preparation eliminates the added pressure of leaving the future of the business to chance and increases the likelihood of receiving fair value for it upon its ultimate transfer.

There are various benefits to devising a formal succession plan. Formal written succession plans are typically prepared with the help of relevant professional advisors. The input of legal professionals can address a number of issues, including earn-outs, restrictive covenants, and developing a dispute resolution mechanism.

Business owners considering developing and implementing a succession plan and/or a merger or acquisition, or those in need of general corporate and commercial counsel, should seek guidance from an experienced legal professional.

Contact Elisabeth Colson of Devry Smith Frank LLP for experienced corporate assistance, at elisabeth.colson@devrylaw.ca or at (416) 446-5048.

By Fauzan SiddiquiBlog, Corporate LawDecember 18, 2019June 15, 2020

Ontario Has a New Construction Act: What You Need to Know About the Transition Period

On July 1, 2018, the first set of changes under Ontario’s Construction Lien Amendment Act (the “Act”) came into force. This Act overhauls Ontario’s construction regulatory framework. Not only should the changes be made note of by Ontario businesses in the construction sector, but the implementation of similar legislation is expected to follow in other provinces.

The legislation was enacted after a 2016 report from the Ministry of the Attorney General called Striking the Balance: Expert Review of Ontario’s Construction Lien Act made 100 recommendations for modernizing Ontario’s Construction Lien Act. On May 31, 2017, the Ontario legislature passed the Act (Bill 142) adopting almost all of the recommendations in the report.

The first amendments that came into force were those modernizing the construction lien and holdback rules as well as the alternative financing and procurement provisions. The second set of amendments deals with prompt payment, a new adjudication process and procedural matters (to be discussed in a subsequent blog) and will come into force on October 1, 2019.

Transition Provisions

It is important to note that the new Construction Act primarily applies to prime contracts that were entered into after the legislative provisions come into force. The old version of the Construction Lien Act still applies if the prime contract was entered into prior to the changes coming into force (regardless of when any subcontract under the contract was entered into), if the procurement process was commenced by the owner prior to the changes coming into force or if the premise is subject to a leasehold interest and the lease was first entered into prior to the amendments coming into force.

Preservation and Perfection of Liens

Prior timelines with respect to liens were often not workable given common delays in paying invoices in the construction industry. The Act extends the deadline for preservation of a lien to 60 days (from 45 days) and the deadline for perfection of a lien to 90 days (from 45 days) from the last day which a lien could have been preserved. This extension allows parties to have more time to negotiate payment as well as to utilize the new adjudication process, coming into force on October 1, 2019.

What is lienable has also changed: prior to the amendments, the definition of improvement included general repairs. Now, the legislation has narrowed the term to a “capital repair” that extends the “normal economic life” of the land. While this may seem like a minor one word addition, the result is that true ordinary maintenance is expressly not considered to be an improvement and does not give rise to any lien rights.

The definition of a “price” under the Act has also changed so that a lien can include any direct costs incurred by the contractor as a result of the delay, but “direct costs” excludes any indirect damage suffered such as a loss of profit, productivity or opportunity as well as any head office overhead costs.

Holdback Payments

The Act has also significantly modified the law with respect to holdback payments. It is now mandatory for an owner to release the statutory holdback funds once the lien period has expired, unless the owner publishes a notice of non-payment within 40 days of the certificate of substantial performance and notifies the contractor of the publication of the notice of non-payment. In reality, the new provision requires the owner to have a bona fide reason to refuse to release the holdback as an unjustified refusal would raise the material risks of disputes and liens as the 40 day period occurs prior to the expiry of the lien period (see above).

Moreover, the Act now allows for the release of holdback payments on an annual basis or upon the occurrence of milestones or phases. This can occur if the following conditions are met:

The contract provides for an annual or phased release of accrued holdback;
The contract price is over the prescribed amount (currently set at $10,000,000)(not applicable for the design phase);
The contract time is scheduled for over one year, or provides for work to be completed in identified phases; and
There are no liens registered that have not either been vacated or discharged at the time the accrued holdback is to be released.

There are also new duties imposed on contractors, subcontractors and owners as trustees of trust funds. In particular, trustees are required to deposit the price they received on their contract/subcontract price to a bank account in the trustee’s name. Moreover, they must maintain written records of the trust funds and keep all information regarding transfers in and out of the trust.

In addition, the Act has limited a trustee’s right to set-off. Previously, the Construction Lien Act allowed for a trustee to set-off money owed for any outstanding debt or damages whether or not related to the improvement. Now, the right to set-off must be related to the specific improvement.

Alternative Financing and Procurement

Prior to the amendments, there was uncertainty about who was the owner on projects where a special purpose company contracts with a public sector entity to undertake a specific project. Now the Act deems the special purpose company to be the owner and the contract between the company and the contractor will be deemed to be the contract with respect to the provisions relating to substantial performance, calculating the lien period, certification of substantial performance, and information requests under the Act. For all other purposes the Crown, municipality or broader public sector organization who owns the premise continues to be the owner under the new Act.

What this Means

The laws with respect to construction in Ontario and elsewhere are changing. It is very important to consult an experienced construction law lawyer with respect to vetting your organization’s invoices, contracts and general practices.

“This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.”

By Fauzan SiddiquiBlog, Construction Law, Corporate LawNovember 27, 2019July 5, 2023

How Canada’s Privacy Legislation Affects the Use of Third Party Information and Payment Processors

Businesses often use third party entities to process customer information or transactions and to then relay portions of that information back to the business. Businesses using third parties in this manner should be aware of the provisions of Canada’s privacy legislation in this regard.

Overview of Canada’s Privacy Legislation

Canada’s two predominant privacy statutes are the Privacy Act, RSC 1985 c P-21 and the Personal Information Protection and Electronic Documents Act, SC 2000, c5 [“PIPEDA”]. The former applies to actions of the federal government, while PIPEDA applies to every entity that collects, uses or discloses personal information in the course of commercial activities. Alberta, British Columbia and Quebec have provincial privacy legislation which is, for the most part, substantially similar to PIPEDA.

Compliance with PIPEDA

Any entity collecting personal information for the purpose of a commercial activity must first obtain the consent of the individuals whose information is being collected. It is important to note that personal information includes the names and contact details of individuals, as well as their credit card and other financial information.

PIPEDA provides that “the consent of an individual is only valid if it is reasonable to expect that an individual to whom the organization’s activities are directed would understand the nature, purpose and consequences of the collection, use or disclosure of the personal information to which they are consenting.” Therefore, whenever personal information is collected in a commercial context, the individuals whose consent is sought must be informed of the manner in which their personal information will be used and disclosed.

The transfer of information to third parties for processing is considered to be a disclosure of information. It therefore follows that when seeking someone’s consent for collection of his or her personal information, the entity collecting the information should outline that the information will be shared with third parties for processing. Furthermore, if the third party is in another country, specific risks such as the possibility of foreign officials obtaining the information, should be disclosed to the individuals whose consent is being sought.

In summary, a business seeking to use third party processors of customer information or payments should so advise any individuals whose personal information will be collected and should outline for those individuals the potential risks of the collection and disclosure of the personal information by and to, the third party. The third party processor should ensure that the necessary consent has been obtained and that its contract with the business provides for indemnification by the business should issues arise as a result of the collection and processing of the personal information.

For questions regarding compliance with Canada’s privacy legislation in a commercial context, please contact Elisabeth Colson of Devry Smith Frank LLP at 416-446-5048 or elisabeth.colson@devrylaw.ca.

By Fauzan SiddiquiBlog, Corporate LawAugust 15, 2019April 30, 2021

Bill C-86: What it Means for Your CBCA Corporation

Bill C-86 institutes a long list of amendments to several Federal statutes, including the Canada Business Corporations Act (“CBCA”), and officially comes into force on June 13^th, 2019. What does this mean for your corporation?

Prior to these amendments, the CBCA required only federally-registered corporations to maintain a general securities register under s. 50(1). As of June 13^th, however, all privately controlled corporations governed by the CBCA will be required to maintain a detailed securities register of individuals with “significant control” over the corporation.

An individual with “significant control” is someone who is the registered/beneficial owner of, or someone who has direct or indirect control over, a “significant number of shares” of the corporation, being either ownership of 25% or more of the corporation’s outstanding voting shares, or ownership of any number of shares equal to 25% or more of the corporation’s outstanding shares measured by fair market value. “Significant control” also includes an individual who has any direct or indirect influence that, if exercised, would result in control in fact of the corporation, and anyone to whom “prescribed circumstances” (to be defined by future regulations) apply. Two or more individuals who jointly own a “significant number of shares” can be considered jointly an individual with “significant control over the corporation.”

The register of individuals with “significant control” must provide the following information with respect to each such individual:

(a) the individual’s names, date of birth and the last known address;

(b) the individual’s jurisdiction of residence for tax purposes;

(c) the day on which the individual became or ceased to be an individual with significant control;

(d) a description of how each individual has significant control over the corporation; and

(e) any other prescribed information [to be explained in future regulations]

The Bill also includes several other requirements regarding the proper maintenance of the “significant control” register. Improper maintenance of this register is an offence punishable on summary conviction and may result in a fine of up to $5000. Any director or officer of a corporation who knowingly records, provides, authorizes or acquiesces in the provision of false or misleading information in this register is liable on summary conviction to a fine of up to $200,000 or imprisonment of up to 6 months, or both.

The corporation’s shareholders or creditors, as well as the Canadian government, may request access to the information contained in the significant control register which, if provided, may be used only for matters relating directly to the affairs of the corporation.

Finally, it is also likely Ontario legislation, at some point in the future, will mirror these new Federal amendments, as the Finance Minister of each province has agreed to “pursue legislative amendments” that strengthen the transparency of corporate ownership.

If you would like more information on these amendments, or would like legal advice to ensure your corporation follows these new requirements, please contact elisabeth.colson@devrylaw.ca or at (416) 446-5048.

By Fauzan SiddiquiBlog, Corporate LawMay 9, 2019June 13, 2020

Erase Every ‘Shall’?

In many English speaking jurisdictions, the term “shall” is deemed to be somewhat ambiguous for the simple reason that it appears to make reference to discretion rather than obligation. In an attempt to look at its meaning precisely, consider Canadian corporate legislation as set out in the Canada Business Corporations Act which states, “A corporation “shall” set out its name in legible characters in all contracts, invoices, negotiable instruments”. In law school, aspiring lawyers are overwhelmed with “shalls” in statutes and contracts and as a result, “shall” still remains the word that makes legal instruments obviously clear.

However, in actual fact, one may argue that it indicates quite the contrary. There has been a notable amendment to the Interpretation Acts of at least three Canadian provinces (British Colombia, Alberta and Manitoba) which states that “must”, is to be interpreted as imperative, eliminating any contradiction with the use of “shalls”. This solution is not commonly acknowledged by other government agencies even though there is insufficient evidence, mainly in the form of case law, to cast doubt on the effectiveness of replacing “shall” with “must” to establish obligation.

This approach may offer more consistency and less vagueness. Legal writing should be precise and, in a ideal world, offer little to no room for dispute. Yet, in corporate contract circumstances, it is common practice to ensure that the obligation of each party is reflected in any agreement, in what should be deemed incontestable. Therefore, the intended consequence must be made ultimately clear to avoid scrutiny. With that being observed, it may be fair to determine that the preferences of legal professionals lean towards the unambiguous “must” – imposing clarity and a legal obligation.

A corporate lawyer is an essential part of your contract review and negotiation process to ensure that any agreement entered into accurately reflects the desired intent.

Contact Elisabeth Colson of Devry Smith Frank LLP for experienced corporate assistance, at elisabeth.colson@devrylaw.ca or at (416) 446-5048.

By Fauzan SiddiquiBlog, Corporate LawApril 30, 2019May 22, 2021

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