Smooth Operator – Managing an Operating

Business M A R C H 2 4 , 2 0 1 6

EMMANUELLE FREDERIC- P O PA & MIKE WEBER

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Agenda q  Employee Matters – Employee vs. Contractor

q  Protecting Your IP

q  Founders’ Dilemma – Managing your Board and Investors

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Employee vs. Contractor: Why do we care?

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Successful companies use multiple types of working arrangements.

Considerations:

Ø  Overhead and administration: employer must make required deductions (EI premiums, CPP contributions, income tax, etc.)

Ø  Worker’s entitlement to benefits (EI, overtime, vacation, severance, etc.)

Ø  Desired level of control over worker

Employee vs. Contractor: Test for contractor relationship

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Is the worker truly operating his or her own business?

Employee vs. Contractor

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1. Intention of the parties.

2. Level of control exercised over the worker’s work.

3. Ownership of tools.

4. Whether the worker hires his or her own helpers.

5. Financial risk taken by the worker and chance of profit/risk of loss for the worker.

6. Degree of responsibility for investment and management of the worker.

Factors to Consider

Factors to Consider

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1. Intention of the Parties Key questions:

Ø  What was the worker told by the Company when hired or engaged?

Ø  What are the terms of any written agreement between the worker and the Company?

Ø  How have the Company and worker behaved and accounted for the worker’s work on a day-to-day basis?

Factors to Consider

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2. Level of control Key questions:

Ø  Is the worker supervised by the Company?

Ø  Is the worker only told what work needs to be done and is left to perform the work using his or her own skills and experience?

Ø  Does the business relationship reflect a long-term and continuous engagement, loyalty to the Company and high integration with the Company’s business?

Factors to Consider

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3. Ownership of tools Key questions:

Ø  Does the worker provide his or her own tools/equipment?

Ø  Has the worker made a large investment in and is responsible for the costs of maintaining the tools/equipment?

Factors to Consider

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4. Whether the Worker Hires Helpers Key questions:

Ø  Can the worker hire his or her own subcontractors/helpers?

Ø  Can the worker send in replacements?

Factors to Consider

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5. Financial Risk/Chance of Profit/Risk of Loss Key questions:

Ø  What is the degree of financial risk taken by the worker?

Ø  Can the worker control his or her opportunity to make a profit or incur a loss?

Factors to Consider

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6. Investment and Management Key questions:

Ø  Has the worker made a capital investment?

Ø  Does the worker have an office?

Ø  Does the worker manage his or her own staff?

Relevant Cases: Uber cases Ø  June 2015 decision of the California Labor Commissioner – worker found to be an

employee. The decision is being appealed by Uber. Ø  June 2015 decision of the California Unemployment Insurance Appeals Board – worker

found to be an employee Ø  March 2015 decision a judge of the federal district court in San Francisco:

o  judge agreed with the plaintiffs’ arguments about why certain California Uber drivers may be properly classified as employees

o  case has been certified as a class action and is set to begin trial on June 20, 2016

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Relevant Cases: Factors considered in Uber cases Ø  extensive screening processes and quality control procedures; Ø  company documents issued to drivers provided detailed instructions as commands; Ø  significant control over revenue drivers can earn (i.e. setting fares, making adjustments to

charges and deciding requests for reimbursements); Ø  Uber does not receive a flat fee from its drivers in exchange for an unlimited number of

“leads”; Ø  clients cannot request specific drivers; Ø  drivers cannot subcontract;

Ø  drivers have no investment in their business other than a vehicle and phone (and a phone would be provided by Uber if driver did not already have one) and no managerial skill that could affect profit or loss; and

Ø  High integration - Uber would not be a viable business entity without its drivers.

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Protecting Your IP

Ø  Ensure Company owns IP under any employment agreement, license or sales contract.

Ø  Ensure any IP developed pre-incorporation is assigned to the Company.

Ø  Invest in well-written non-disclosure agreements.

Ø  Patent what is important to others and you.

Ø  Identify, register, track and police all trademarks and copyrights.

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Founders’ Dilemma: Managing your board and investors

Establish corporate

governance best practices right from the start.

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Founders’ Dilemma: Managing your board and investors Ø  Each party plays its part:

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Provide capital and approve major Company transactions

Shareholders

Board of Directors

Elect

Appoint Officers/Senior

Executives

Responsible for day to day operations

Oversee the management of the Company

Founders’ Dilemma: Managing your board and investors

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Accountability and

Transparency to all

Stakeholders

Books and Records

Standard Form Contracts

Documented Decision Making Process

Books and Records

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Create and maintain books and records of the Company:

Minute Books: ● articles and by-laws ● initial organizational

resolutions ● directors’ and shareholders’

resolutions ● issued share certificates ● annual maintenance

(resolutions, reports, etc.)

Financials

Policies and Procedures/Manuals

Ø  Invest in a set of well-written standard form contracts tailored to

your needs: o  non-disclosure agreements

o  employment and consulting agreements o  sales agreements

o  licensing agreements

o  etc.

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Standard form contracts

Ø  Be familiar with and obtain all required consents and approvals

for transactions under:

o  articles and by-laws

o  shareholders’ agreements

o  loan agreements

o  etc.

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Documented decision making

Documented decision making

Directors owe a fiduciary duty to the Company:

Ø  Document decisions, and decision making process, in directors’ resolutions/minutes

Ø  A due diligence defense requires due diligence

Ø  Disclose any conflicts of interests and abstain from voting if any exist

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Client-Centered. Responsive. Innovative.   At Michael, Evrensel & Pawar LLP (MEP Business Counsel), we approach the practice of business law differently. As a guiding principle, we are committed to provide the same

high-quality expertise of a top-tier national law firm, but deliver it with the innovation, cost-efficiencies and personal attentiveness you’d expect from dedicated in-house counsel.

  As a Canadian corporate and entertainment law firm with extensive international experience, our contemporary model is simple but far from common:

  World-Class Experience – Our team of highly experienced and award-winning lawyers – with training and experience from internationally recognized firms in London, New York, Toronto, Montreal, Beijing and Vancouver – provide world-class business and entertainment legal services to some of North America’s most notable companies.

  Client-Centred Approach – Clients now demand more of their legal advisors, which is driving a change in the legal services landscape in Canada, and rightly so. Businesses expect greater value at sensible prices, which is achieved by receiving practical legal advice tailored to advance their goals. At MEP Business Counsel, we have an unwavering commitment to your business, with a goal to provide you with bespoke legal services that put your real needs first.

  Business-First Thinking – We have a unique combination of established legal expertise and commercial understanding. Effective business counsel should help drive your commercial success by crafting solutions, not by simply identifying constraints. At MEP Business Counsel, we pride ourselves on aligning our advice with your core business objectives, offering solutions to overcome obstacles. After all, we are entrepreneurs in our own right.

  Flexible Value-Based Pricing and Alternative Fee Arrangements – Your business needs are unique. That’s why MEP Business Counsel is flexible when it comes to pricing and fee arrangements. Unhindered by the rigidity of the conventional “big law” firm model, MEP Business Counsel is able to work with you to respond to those unique demands. Regardless of the fee arrangement, at the core of each of our mandates is a commitment to provide exceptional value and build lasting business relationships.

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meplaw.ca facebook.com/mepbusinesscounsel @meplaw MEP Business Counsel 604.669.1110

SR&ED – Documentation and Time Tracking

Presented by Jeff Christie, Partner, Boast Capital

OUTLINE

I.  Overview of the SR&ED Program II.  Benefits of Claiming SR&ED III.  Time Tracking and Documentation IV.  CRA’s Requirements V.  Do’s and Don’ts VI.  Q&A

I. OVERVIEW OF THE SR&ED PROGRAM

WHAT IS SR&ED?

APPLICABLE INDUSTRIES

QUALIFYING CRITERIA

Must meet three criteria to qualify for SR&ED:

1.  Technological Challenges 2.  Technological Uncertainty 3.  Technical Content or Iterations

ELIGIBILITY The CRA’s 5 questions: 1.  Was there a scientific or a technological uncertainty that could not

be removed by standard practice/engineering? 2.  Did the effort involve formulating a hypothesis specifically aimed at

reducing or eliminating the uncertainty? Continued…

ELIGIBILITY 3.  Was the adopted procedure consistent with the total discipline of

the scientific method, including formulating, testing, and modifying the hypothesis?

4.  Did the process result in a scientific or technological

advancement? 5.  Was a record of the hypothesis tested and results kept as the

work progressed?

EXAMPLES

II. SR&ED BENEFITS

WHO CAN CLAIM?

SMEs = defined as generating less than $500K taxable net income in the prior fiscal year.

SR&ED BENEFITS Return rates for SME CCPCs:

SR&ED BENEFITS Return rates for non-CCPCs:

III. CRA REQUIREMENTS

TECHNICAL DOCUMENTATION CRA requires that SR&ED documentation must: §  Have been documented at the time the work was completed §  Highlight technical obstacles or challenges §  Be dated

TECHNICAL DOCUMENTATION §  Most important thing is to document the technical challenges/obstacles as the work

progresses.

§  Capture: the problem and the iterations undertaken to attempt to resolve the problem

§  What are the different hypotheses and how was each hypothesis tested?

TECHNICAL DOCUMENTATION

§  For a typical software project, only the major technical challenges/obstacles encountered by the team in a month need to be documented -- not every little problem.

TIME TRACKING

TIME TRACKING Track time by project and activity §  For a software company, time should be tracked by the following activities:

§  Development §  Testing §  Project Management §  Assignment of Resources §  Technical Analysis §  Technical Requirements §  Non-SR&ED (catch all for time that doesn't fit into activities above)

TIME TRACKING §  Any type of system can be used (i.e. Excel or web time tracking system)

§  Important thing is that time is tracked and broken down by project and activity

§  Specified employees who are likely to be included in the claim, need to track time as well. §  Time claimed for specified employees comes under additional CRA scrutiny

§  Time sheets can be entered daily or weekly and at half or quarter day intervals §  no need to be too precise; more important that time is captured

FINANCIAL STATEMENTS

WHEN TO CLAIM?

18 Months Past Fiscal Year End § Current Claim = Within 6 mo §  Amended Claim = Within 7 to 18 mo

TURNAROUND TIMES

From receipt of a complete claim:

§ CCPC Current Claim – 4 months § CCPC Amended Claim – 8 months § Non-CCPC Claim – 12 months

CRA REVIEWS

CRA Review ≠ Tax Audit Multiple types of Reviews:

§ Desktop §  Financial §  Technical & Financial §  First Time Claimant Advisory Service (FTCAS)

IV. THE DO’S AND DON’TS

THE DO’s

Do: §  Pay yourself and staff §  Start time tracking and proper documentation

now §  Incorporate your company

THE DON’T’S

Don’t: §  Underestimate the importance of

documentation §  Focus on the business opportunity §  Leave SR&ED claims until the last minute

JEFF CHRISTIE PARTNER 403 589 2809 | jchristie@boastcapital.com BoastCapital.com | @BoastCapital | @ChristieLuge

Presenter Bios

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  Call to the Bar Alberta, 2012 British Columbia, 2014

Areas of Expertise Mergers and Acquisitions Corporate Finance Corporate and Commercial Technology Start-up Companies Venture Capital / Private Equity Education J.D., University of British Columbia, 2011 B. Comm, Concordia University, 2003

@meplaw

Emmanuelle Frederic-Popa

 

Emmanuelle Frederic-Popa (epopa@meplaw.ca; (778) 331-0286) Associate Emmanuelle Frederic-Popa is an Associate at MEP Business Counsel. Emmanuelle’s practice encompasses a wide variety of corporate and commercial law transactions, with a focus on mergers & acquisitions, corporate governance and financings. Emmanuelle advises public and private companies in Canadian and cross-border mergers & acquisitions, financings, securities offerings, technology-related transactions and regulatory compliance. She also regularly assists clients on general corporate matters and corporate governance issues.

Prior to joining MEP Business Counsel, Emmanuelle worked in the Calgary office of Blake Cassels & Graydon LLP representing both private and publicly traded issuers and acting on behalf of underwriters and dealers in a wide variety of private and public offerings of debt and equity securities as well as mergers & acquisitions.

Prior to practising law, Emmanuelle was an Information Technology project manager at Johnson & Johnson and has experience in the consumer, medical devices and pharmaceutical industries.

Selected Representative Work

§  Represented Shoes.com Technologies Inc. in its acquisitions of all of the shares of St. Louis based Shoes.com and California based Richer Poorer, Inc.

§  Represented a publicly traded Alberta-based company on numerous cross-border private equity commitments in private technology companies.

§  Represented Thunderbird Films Inc., a Vancouver based film and television production company, in connection with its acquisition of all of the shares of Great Pacific Media Inc. and Soda Pictures Limited.

§  Represented a British Columbia-based food and beverages distribution company in the sale of its assets to a New-York based private equity fund.

§  Represented a publicly traded company on its $69-million acquisition, through a Canadian subsidiary, of a private Alberta-based Engineering, Procurement and Construction Management company.

§  Represented the target in connection with its $15.1-billion acquisition by a foreign company and subsequent restructuring.

§  Represented numerous junior oil and gas companies on approximately $220-million of aggregate private equity commitments.

Presenter Bios

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Call to the Bar British Columbia, 2013 Areas of Expertise Corporate and Commercial Corporate Governance Mergers and Acquisitions Joint Ventures Private M&A Corporate Finance and Securities Education J.D., University of Victoria, 2012 B.A., SFU, 2004

Mike Weber (mweber@meplaw.ca; (604) 891-1153) Associate

Michael Weber is an Associate at MEP Business Counsel. Michael’s primary practice focuses on mergers & acquisitions, corporate finance, and corporate/commercial legal matters. Michael advises public and private companies and underwriters in Canadian and cross-border mergers & acquisitions, financings, securities offerings and regulatory compliance. He also routinely assists clients on general corporate matters and corporate governance issues.

Prior to joining MEP Business Counsel, Michael practiced business law in the Vancouver office of McCarthy Tétrault LLP. Prior to practicing law, Michael lived in Taiwan and was a teacher.

Selected Representative Work

§  Advised Travelers Capital Corporation on the multi-phase $28 million financing of wind projects totaling 61-megawatts under Nova Scotia’s COMFIT program, representing the first successful financing under such program.

§  Co-advised a joint-venture group in its bid ($100 million) for a 25-megawatt run-of-river hydroelectric project located near the Lower Mainland, British Columbia.

§  Assisted a banking syndicate in connection with $102 million dollar financing of a 36-megawatt Electricity Purchase Agreement-awarded biomass project near Fort St. James.

§  Represented an industrial construction services company in its acquisition of a Vancouver-based construction management company.

§  Advised Thunderbird Films Inc. in its acquisition of all of the shares of Atomic Cartoons Inc. §  Represented Nerd Corps Entertainment Inc., a Vancouver-based animation studio, with the sale of all of its shares to DHX

Media Ltd. for approximately $57 million. §  Advised Coastal Contacts Inc. during its USD$430 million acquisition by Essilor International by way of a Plan of Arrangement

under the Business Corporations Act (British Columbia).  

@meplaw.ca

Mike Weber