Owning an Incorporated business is a complex undertaking. Business owners, and shareholders, invest their lives in building their businesses. They know their businesses inside out and understand how important it is to protect corporate assets and revenues to ensure the business can continue to operate and grow. Unfortunately, all too often the legal structure of the business can be overlooked, and this can result in major issues when the business owner experiences family conflict.
Business ownership and decision-making is often challenged as a result of family litigation. A typical scenario is when separating spouses have to deal with legal ownership of an incorporated business with a spouse that may not be involved in this business but has equally or critical ownership over this business. Or, a spouse may have an equitable interest in the business as family (formerly matrimonial property), even though there is no legal entitlement with this spouse neither being a director, or shareholder. Parties often do not understand that even with incorporated businesses that are solely owned by one spouse, that they remain property that is subject to property division.
The consequences for a business can be dire, financially and the practical management of a business. In the absence of an effective legal structure and legal representation, a corporation (incorporated business) can be “frozen”, subject to preservation orders or further restrictions, operating decisions can be altered or controlled, and corporate revenue can be greatly effected.
Parties must ensure that during separation (common law and married spouses) that the Director and Shareholder Resolutions in their respective Minutes Books, has taken place if one spouse in family property division is becoming the sole legal owner of this incorporated business. Parties should also ensure they have the presence of a Share Purchase and Sale Agreement to reflect the transfer of incorporated business rights and financial value of a business moving jointly from both spouses to one spouse.
The less capably a business owner is in ensuring that their Incorporate business is up to date, the less they may be able to respond to legal challenges, especially family law property division challenges that place substantial disclosure requirements on business owners, and their businesses. As an example, if a business owners does not have a well-put together and up to date minute book that details ownership and decision-making it will be lend itself to potential argument that the business is not separate from its principal shareholder(s) and therefore that incorporate assets and revenue are family (formally matrimonial) property.
As a result, the division between incorporated pre-tax revenue and expenses and personal income that a party may obtain from this incorporated business can be subject to increased child and spousal support obligations.
Establishing and maintaining your incorporated businesses Minute Book, which allows you to effectively deal with the ownership of equity and corporate decision-making should be top of the mind for anyone with an interest in an incorporated business when entering into a relationship, contemplating separation from their spouse (common law or married), or dealing with their estate. Directors and shareholders should take their documents (Minute Book with annual accounting business information on payments to shareholders and decisions affecting director and shareholders annually to a trusted lawyer with the skill to provide this essential annual update without the expansive price of keeping your incorporated business records updated.
The following documents should be included and regularly reviewed for every incorporated business:
- Articles of Incorporation – this document is required to incorporate and provides a summary of the structure of the incorporated business;
- Certificate of Incorporation - this certificate confirms that the business is a corporation, and providing the date of incorporation, and corporate access number;
- Notice of Directors, Address, Name Changes - notices filed with Service Alberta confirming changes to directors, addresses of the corporation, and any name changes or alternate names of the Incorporated business;
- Bylaws - the constitution of an incorporated business. This document deals with decision-making within the corporation, including the rights and responsibilities of directors, officers, and shareholders;
- Consent to act as Director- a document confirming that each director of the corporation understands the responsibility and liability of acting as a director;
- Minutes/Resolutions - this is a record of the decision-making of a corporation, including issuing new shares, appointing directors, and adopting agreements that bind the corporation, forming committees or appointing officers, annual returns, and other significant decisions taken by directors or shareholders;
- Loan Agreements/Share Purchase Agreements - all loans or share purchases should be recorded in legal agreements that meet the requirements of the corporation for entering into such agreements;
- Registers - the summary of shareholder transactions, and director’s elected/appointed by the corporation;
- Annual Returns - filed annually with Service Alberta to maintain registration of a corporation;
- Share Certificates - the documents demonstrating the ownership of shares in a corporation; and
- A Unanimous Shareholders’ Agreement - this is an optional agreement that is often entered into when there are multiple shareholders that actively manage and operate a corporation. These agreements determine how decisions among these shareholders are made and can include restrictions on decision-making in the event of litigation. They are often used effectively to protect the operations of corporations during family litigation. If you are contemplating cohabitation, marriage, separation or divorce and own shares in an incorporates business, you are well advised to review, and amend your corporate documents simultaneously to insulate the business from any disruptions that could be caused by separation.
A lawyer that has expertise in family law as well as corporate/commercial law will be able to assist you in managing both the personal and incorporated business interests that are often intertwined in family matters.
Kindly contact our office to speak to one of our lawyers who specializes in business and family law corporate for annual updates or in conjunction with a final change in incorporated business ownership with the advent of a separation and property division by contacting our general office number: 587-392-7970 or our general office email: info@familycentrallaw.com so that we may set up a free telephone consultation with you.
