PPSA Registration


In this post we discuss how and why you may want to do a PPSA Registration. We are assuming that you, the reader, are a holder of a “security interest” in property.

Security Interest?

Very simply, a security interest is one legal expression describing your economic right to the value in someone else’s property. If someone borrows money from your company to purchase a car, you may get a security interest in, and file a lien on the vehicle. If your company invests in another company using convertible debt, in the agreement you sign, that company may grant your company a right to the economic value in its intellectual property through a security agreement.

In the examples above, if you are able to secure your interests properly using the Personal Property Security Act (the “PPSA”), if the debtor can’t repay you, your claim against the secured assets (the car, the Intellectual Property) will get preference over other claimants that do not have such a registration. The PPSA provides a framework for the registration, recognition and enforcement of these secured interests and provides rules for a pecking order between the different registered secured interests. Each Canadian province has its own PPSA rules and regulations which are broadly similar.

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In this post we will discuss what a drag along clause is, how it is triggered and its use in a shareholder agreement. A drag along clause is used when there are majority and minority shareholders. It usually favours the majority shareholder. A drag along clause is essentially a right that enables the majority shareholder to force a minority shareholder to join the sale of the company. As the term ‘drag along’ suggests, it allows the majority shareholder to drag the other shareholders along.  As a founder, while setting up your company, you should be aware of what options are available to you in the event of the sale of the company. At the time of drafting the shareholder agreement, it is crucial that rights, obligations and exit options are clearly defined. A drag along clause is usually found in the shareholder agreement.

What is a drag along clause?

A drag along clause is the clause in the shareholder agreement that allows a majority shareholder to force the minority shareholders to join in the sale of the company. The majority shareholder who triggers the drag along clause must give the minority shareholder(s) the same price, terms, and conditions as any other seller. The drag along clause is usually negotiated into a shareholders’ agreement by an institutional investor such as a business angel, venture capital investor or private equity investor for whom the exit from the investment is of particular importance. The power to trigger the drag along lies with the majority shareholder so that the minority shareholders are not able to hinder the selling process.

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Understanding Dilution

In this post, we will attempt to understand what dilution is, how it works and what anti-dilution measures can be taken. As an entrepreneur, understanding the concept of dilution is very important in helping you raise capital for your business.

What is dilution?

Dilution is a reduction in the percentage ownership of a given shareholder in a company caused by the issuance of new shares. Dilution is good if the company manages to profit out of issuing new shares, but if the company fails to make a profit, then the dilution will reduce the value of your holdings. Dilution can be likened to the act of dividing the proverbial pie into ever smaller pieces.

How does dilution work?

Here is a simple explanation of how dilution works:

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The board of directors of your corporation


In this post, we want to explain to you (in case you were a little unsure,) what a board of directors is, how directors are appointed, and what some of their duties and responsibilities are. A board of directors of a company is one or more people appointed by the shareholders to manage the business affairs of the company. A well-chosen board of directors can be a great asset to your organisation, allowing you to focus your time and energy on developing ideas, products, services ( and money!), the board can strategise on taking the business to the next level and making sure the overall management of the company is appropriate. And so, all good owners, officers, senior managers, directors, and shareholders will be well served to understand the broad (Canadian) legal aspects of the creation and functioning of a board.

What are Directors and what do they do?

Corporations in Canada can be incorporated federally under the Canadian Business Corporations Act (the “CBCA”) or provincially under the corresponding provincial legislation. Your company is required by law to have a board of directors. Section 2 of the CBCA defines director as:

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What is a Bring-Down Certificate?

In this post, we shall discuss what a bring-down certificate is and what it entails. A bring-down is a provision requiring the representations and warranties that were made at the time of signing of an agreement to be made again on the closing date (or at another specified date). A bring-down condition is generally satisfied by the delivery of a certificate signed by an officer of a company certifying that the representations and warranties are true and correct as of the date of the certificate, subject to the conditions set out in the agreement. The bring-down certificate is delivered at the time of closing of a transaction. In transactions of a financial nature, this certificate may be delivered at the time funding is required.

Buyers often request as a condition to closing, a bring-down certificate from the seller in which the seller confirms that all the representations and warranties are still accurate as of the closing and that no obligations have been breached. The continued accuracy of the seller’s representations and warranties is made a condition of closing. Essentially, the certificate “brings down” the representations and warranties to closing. Since representations and warranties are usually intended to reflect the situation that exits on the day the agreement is signed, a bring down certificate is requested by the buyer to cover the period between the date the agreement is signed and the closing date. If a breach or non-compliance is discovered prior to closing, the buyer has the right not to proceed. The buyer shall also have the right to ask for damages.

For a transaction where the operative agreement (such as a merger agreement or purchase agreement) has to be signed before the closing, the certificate is signed by an officer of a company and delivered at the time of closing.

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Promissory Notes & Warrants

In this post, we will briefly discuss Promissory Notes and Warrants and their characteristics. Promissory Notes are a type of negotiable instrument. Negotiable instruments are legal documents guaranteeing the payment of money.  A Warrant is a right to buy stock in a company at a future date at a pre-determined price.

A small business can protect itself from the many risks involved in giving loans to clients by making use of a Promissory Note. Anytime you extend credit to a client, you get the client to sign a Promissory Note guaranteeing payment.

What is a Promissory Note?

In Canada, Promissory Notes are governed by the Bills of Exchange Act (the BEA), which provides that they are unconditional promises in writing, made by one or more persons to another, engaging to pay a certain sum of money subject to certain requirements as to the promise. Section 176 of the BEA defines a Promissory Note as follows:

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Two ways to do Mergers and Acquisitions

In this post, we will briefly discuss and compare two Canadian procedures used to acquire a corporation (the “Target“) : a take-over bid and a plan of arrangement. A “Take-over Bid” is an offer to buy a company’s shares in order to gain control of the company’s business. A “Plan of Arrangement” is a court-sanctioned procedure that allows a companies to combine or effect one or more fundamental changes. We will look at the advantages and disadvantages of both these procedures. Both procedures are governed by the corporate legislation under which the Target is incorporated (federally or provincially.) 

What is a take-over bid?

A Take-over Bid is a direct offer that is (as generally defined in securities law*) made to security holders of more than 20% of the outstanding securities of the Target. The bidder (“Acquirer“) may offer securities or cash or combination of both as consideration.  A Take-over Bid can often be a hostile takeover, i.e. where the management of the target company is unwilling to agree to the takeover but the Acquirer continues to pursue it by directly approaching the shareholders.

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What is a Resolution?

A resolution is a form of approval. A resolution is an agreement or decision made by the directors of a company. For example: approval of the change of registered office address of a company, approval to amend the articles of a company, approval to enact by-laws of a company, etc. In some cases, certain matters must be approved by the directors and in other cases it may be that shareholder approval is required. In some cases, both directors and shareholders may need to approve a resolution.

How are Resolutions approved?

Resolutions can be approved at meetings of the directors or shareholders. A notice must be given of the meeting to every director and shareholder. A quorum of those directors and shareholders must attend the meeting (quorum is the minimum number of directors/shareholders that can form a quorum is outlined in the company’s by-law and frequently is a majority). Then the resolution is signed and approved.

What are the different types of Resolutions?

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Shotgun Clauses

In this post, we discuss what a shotgun clause is and how it works. A shotgun clause is a specific type of exit provision that may be included in a shareholders’ agreement. The shotgun clause allows a shareholder to offer a specific price per share for the other shareholder(s)’ shares; the other shareholder(s) must then either accept the offer or buy the offering shareholder’s shares at that price per share.

A shot gun clause enables shareholders to get out when all else has failed and they are unable to reach a compromise and have decided to go their separate ways. It has reached a stage where going their separate ways is the best idea because if they’ve reached a point where they had to trigger the shotgun clause then they are beyond reconciliation. The court in Kuksis v. Physical Planning Technologies Inc. said, “one of the purposes of a shotgun clause, if not its main purpose, is to allow shareholders who can no longer work together to separate yet leave the company intact.” When the situation has escalated to the point of no negotiation, it is in the best interests of the shareholders and the company to exercise the shotgun clause.

A shotgun clause has also been likened to a pre-nuptial agreement. As with a prenuptial agreement, it is important to set out an exit clause early on in the business relationship when interests are still aligned and partners can still reason with each other. Shotgun clauses can help in protecting interests of both parties in a ‘business divorce’. The clause is often triggered when both parties want to run the company, but not with each other..

 A shotgun clause works like this: any partner can approach the other, at any time, with a forced offer to buy or sell their shares within a fixed deadline, at a named price per share. The other partner at the receiving end of the shotgun has only one choice: they can choose whether to buy all their partner’s shares, or sell all of their shares. One or the other transaction must happen, within the deadline (ranging from as short as 48 hours to 30 days), at the price named by the person who triggers the shotgun.

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New Protocol to the Canada Barbados Treaty

On December 17, 2013 the Protocol (the “Protocol”) amending the Agreement between Canada and Barbados for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital (the “Treaty”) entered into force.

This Article will provide a summary of important changes to the Treaty under the Protocol.

Amendment to Definition of “resident of a Contracting State”:

The Protocol in Article 1, defines the term, ‘resident of a Contracting State’. According to the new definition, any person who is liable to be taxed on the basis of their domicile, residence, place of management, any other criterion of a similar nature, under the laws of the state shall be considered to be a resident of a contracting state. The amendment made pursuant to the Protocol, excludes any person who is liable to tax only with respect to income from sources within each Contracting State.

International Business Companies and Similar Entities:

A Barbados International Business Company (the “IBC”) is an offshore legal entity, similar to a corporation that is required to conduct its business with customers outside of Barbados. The IBCs like any corporations have shareholders (members), officers and directors.

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