Recently we have had some questions from clients about the value and enforceability of documents prepared in anticipation of doing a deal. In one case, the binding nature of a letter of intent was in question, and in another, some clients wanted to know what effect a handwritten list of deal items would have on the sale of a business.
The letter of intent, sometimes called a memorandum of understanding, was created by a professional who contemplated most of the essential elements of the deal. The list of deal items, on the other hand, was the result of a casual brainstorming session between two business people who were trying to negotiate a deal that would make them both happy. The two documents look vastly different and seem worlds apart; but the truth is, they’re not that different.
In the lead-up to a major transaction, letters of intent are often used to clarify the major points of a deal such as purchase price, deliverables, timing and any restrictive covenants that might be required by either side. They’re often used liberally because the parties feel like they’re not binding, or not as binding as the final agreement. The truth is that letters of intent can sometimes be as binding as a formally executed agreement – it will all depend on the wording of the document and how well it evidences the intentions of the parties to be bound. A letter of intent that is clearly exploratory will have a different effect than a clearly binding letter.
The list of deal items is little different. A wish list of clauses, drafted by one side, is going to be treated differently than a list of items that actually evidence points agreed to by both parties – particularly if either party is then obligated to undertake any further actions, such as financial disclosure.
In both cases, pre-papering the negotiation of a deal can be incredibly helpful in making the best deal possible, in lowering legal costs, and in keeping a record of the evolution of the deal. But at the same time it’s important to know that the documents, as well as the conversations about the deal, particularly including any letters or e-mail about the terms, may have a legally binding effect. The best practice is to retain counsel when the deal is contemplated and talk to them about what sorts of documents need to be prepared and when. Setting the terms out on paper will reduce the amount of negotiation on the final agreement and should help reduce unexpected surprises.
As always, we’re here to help with all stages of your deals !
Inga B. Andriessen JD
It’s March Break week in Ontario – the highways are quieter and it’s tougher to get work done because so many people are away.
The Courts are full of people with non-school aged kids, litigating disputes blissfully unaware that many people have overpaid to travel at the busiest time of the year.
So, where does that leave your business? How are you handling it? What do you do when many people want the same week up?
If you’re unable to answer those questions, it’s time to think about it and create policies.
In Ontario, the Employment Standards Act has mandatory minimums for vacation time and pay that you cannot contract out of. After an employee has worked a full year, they are entitled to 2 weeks of vacation time. From the moment they start working, they accrue an entitlement to 4% vacation pay. That amount can be paid when they take their 2 weeks or you can pay as you go. If you pay the 4% each pay cheque, when they take their 2 weeks off, you don’t have to pay the employee because you already pre-paid that vacation pay.
Most employers choose to pay salaried workers the same amount all year, yet provide them with at least 2 weeks of vacation as well. This is certainly simpler and generally, should not be an issue with “the math of vacation pay” but it’s always important to be sure.
In terms of who gets to take time off and when, have a written policy regarding how to apply for vacation dates. Remember, you cannot discriminate on the basis of family, so you cannot say employees with children get first choice. Be fair. Have a policy and rely on it.
Inga B. Andriessen JD
Sometimes the stress of cash flow, business planning and the general day to day grind of people’s jobs can lead to some really bad decisions. Generally the really bad decisions are ones that are made quickly or out of an emotional response, rather than a business response.
The business decisions that people struggle with are often dealing with hiring/firing of employees, refusing to extend more credit to a customer or starting to do business again with a former client or partner that you previously had refused to do business with.
Let me start with the “easy one” from my point of view, which is the last one. If you are dealing with a relationship that ended badly, to the point where you were in litigation, you likely should not restart your business relationship. I stress business relationship as opposed to personal relationship. Personal relationships can continue or re-establish themselves after litigation – but once you’re have to pay a lawyer to deal with a business relationship, do the smart thing and ensure you won’t have to pay the lawyer a second time to deal with the same party.
The refusal to extend more credit to a customer is also an easy issue from my point of view as well. However, I appreciate that many business are concerned that they will lose a customer. To those businesses I often ask point blank: “if someone is not paying you, why would you want them as a customer?” A customer who doesn’t pay on time is losing your business money. Consider the cost of “financing” the receivable, together with the lost employee productivity and ultimately legal fees involved in getting paid what you are owed and the clear business decision is: if a customer fails to meet your terms, do not extend credit and use 30-60-90 Sue, as discussed in earlier blogs.
Finally, there is the often difficult issue of employees, particularly terminating employees. If you have the responsibility of hiring/firing, then be honest with yourself and your business: you know when someone needs to go. It’s amazing how quickly one bad seed can come into a great work environment and poison it completely in a matter of weeks. Do not terminate in anger though, consult a lawyer and be sure you do it properly to avoid further fall out. But remember: the longer you wait to terminate someone who truly needs to leave, the more damage they do.
In keeping with the theory that all we ever need to know in life we learned in kindergarten, I’ll leave you with this thought from my Kindergarten teacher : “think before you act, but don’t wait a long time before acting.”
Inga B. Andriessen, J.D.
In Ontario, in most cases, the loser in a step in a civil law suit pays the legal fees of the winner. It is for this reason, we always advise our clients of this and warn that no outcome before a Judge can be guaranteed.
There is good reason for awarding costs against the loser: it reduces frivolous litigation and ensures that we don’t end up looking like the USA legal system. I am aware of the view point that says this stifles legitimate litigation by scaring people away with the threat of legal fees.
The amount of legal fees awarded is divided into two categories: substantial indemnity and partial indemnity costs. Substantial indemnity costs are 100% of the legal fees and disbursements the winner paid their lawyer. Partial indemnity are approximately 60% of the legal fees and 100% of the disbursement the winner paid their lawyer.
Substantial indemnity costs are generally only awarded in a few situations:
1. if there is a contract that entitles the winner to those costs;
2. if the loser has alleged fraud and is unsuccessful;
3. if the winner had offered to settle for amount less than they were awarded.
A company with a good reason to sue should not be afraid to do so. With good legal advice, the risks can be properly managed and you can litigate with confidence.
Inga B. Andriessen JD
Yesterday in Ontario we celebrated Family Day. Family is such an interesting thing to celebrate as there are those who feel they do not have much to celebrate in that department. Some of those who have that sentiment have no doubt experienced being dragged into business problems by other family members.
A few of the situations we see in our are of law that impact families are as follows:
1. Using the family home to finance a failing business. If your business is hopelessly in debt with no realistic plan to turn it around, why are you compounding that problem by putting your family’s home up as collateral for business loans?
2. Refusing to prepare a Will, then dying. Without a proper Will, ensuring continuing income from a family run business can be a problem. There inevitably is a period of time where the cash will not flow. That is a problem. You will die. Prepare a Will.
3. Having a family member incorporate a new company to carry on the same business as your company, that just had judgment obtained against it. Our firm is particularly familiar with this situation as we find ourselves often suing multi generations of families who have been looped into the debt of the original company at the request of another family member. Much like item 1, why are you bringing your parents, spouse and kids into the debt problem of your company?
Love your family. Don’t drag them into a bad business situation.
Inga B. Andriessen JD
Roses are red,
Violets are blue,
If you’re in a law suit,
Don’t represent you.
Ah, Valentine’s Day. A day to celebrate love and the emotion that comes with it.
While being in touch with your emotions is good for your personal relationships, being emotional is not a good quality when representing yourself or your business in front of a Judge.
In Ontario, businesses do not have the right to represent themselves, they must obtain Leave, which is a fancy way of saying, permission, from the Court. Permission is not automatic. Courts have the right to refuse and will do so, particularly in situations where the representative is being uncooperative with counsel.
Many years ago I successfully argued that the owner of a company could not represent the company in the lawsuit I brought on behalf of my client. The fact that the individual had called me “ignorant and ugly” in writing helped show the Court that they were not able to conduct themselves appropriately in the law suit.
Even if you are confident you’ll be able to avoid calling the opposing counsel names, representing your company in Court is still not a good idea. Ultimately, this is your business and your money that is on the line. You will not be able to evaluate the strength of the other party’s position as you will be convinced yours is correct. You will also not have the benefit of legal research and arguments. You want to avoid that.
Lawyers are usually not free and the cost to hire one to defend a business in a law suit can be overwhelming. However, there are law firms available who will work with businesses on payment terms. It is worth looking into, because ultimately, you don’t want to be the one representing your company in Court.
Inga B. Andriessen JD
Starting a new business is an exciting time for a business owner. Many times the idea to start a business comes up quickly and spontaneously. While the desire to move quickly is understandable, moving without a plan in place is likely to see that business fail just as quickly.
The starting point for a new business should be a business plan. Where are you getting your customers? Do you need to borrow money to buy inventory, pay employees, etc? How long will it take to be profitable?
Once you’ve crunched the basic data, it’s time to decide which professional advisers you’re going to use. Speaking to a lawyer and/or accountant might seem like a big expense at this point in the business, however, spending $ 500.00 to get professional advice early on will save you literally tens of thousands of dollars in litigation later. It’s worth the expense to talk through your options for carrying on business, both from a liability and tax perspective.
If the business carries on business through a corporation with more than one shareholder, a shareholder’s agreement is important. This can set out the responsibilities of shareholders to each other as well as set out how to deal with shareholders leaving the company.
If the business involves being paid over time by customers, ensuring you have written contacts that includes terms Courts will uphold is important. The days of business by handshake are over: if it matters, write it down.
If the business is hiring employees, using an employment agreement is very important so that you are able to control the amount of notice you need to give employees before terminating them without cause. Don’t wait until you have “the money” for this: hiring an employee without a contract means they could be entitled to one month per year of service as notice (or more) and that is incredibly expensive.
Our firm enjoys working with new businesses and is sensitive to the costs associated with giving that advice. If you have a new business idea and would like to plan it out, reach out to us: we’re here to help you succeed.
Inga B. Andriessen JD
We’ve just celebrated the Lunar New Year, which maybe means it’s a good time to reflect on an old curse: “may you live in interesting times.” Oh boy. We’re certainly doing that right now, aren’t we?
The political upheaval in the USA that has been felt world wide. What does that mean for business in Ontario and what legal issues should you be aware of while running a business right now?
Before I dive into the business issues, I note I wrote this Blog prior to the attack on the Mosque in Quebec. Our firm’s condolences go out to everyone impacted by the attack. We are a firm of inclusion, not hatred.
The first business issue that springs to mind is with respect to employment law issues. The Trump Presidency has spawned, in the words of Aziz Ansari, some “lower case kkk” behaviour. Many people believe they no longer need to be respectful of others beliefs, origins and sexual orientation: they are wrong. The Ontario Human Rights Code still applies. Damages will be awarded against employers who discriminate and they will not be small. Employers must continue to ensure their workplaces are free of discrimination.
The Ontario Occupational Health and Safety Act, as it deals with workplace harassment, is also still very much in force. If you allow one political view to bully another, there are expensive consequences to the employer. Employers must continue to ensure their workplaces are free of workplace violence and bullying.
The second issue that jumps out at me is the issue of managing your business’ social media. Ensure you have a social media policy. Ensure it is enforced. Ensure the person responsible for posting to your social media feed is clear on what your business wants to contribute to the current online debate, if anything. You want to come out of this like @Lyft, not like @Uber. That is not to say either company is correct, it is to say, you don’t want to drive away business.
Consider having a mandatory “cooling off” period before responding to social media posts: if possible, have more than one person work on crafting responses to ensure they’re consistent with your brand.
These are interesting times. They don’t need to have devastating financial consequences if you take a moment, take a breath and act with purpose, not with “reaction”.
Inga B. Andriessen JD
I recently reviewed a Statement of Claim that was served on one of our clients. The document had many typos and included this gem:
“no fair hearing prior to overkill termination undeserved.”
That was a stand alone sentence, in case you thought that I only used part of a sentence. Yes, I know it doesn’t start with a capital letter. Evidently the lawyer didn’t realize it should have.
This lawyer is no doubt charging hundreds of dollars per hour to draft this poorly. This is not right. Clients deserve better. Clients deserve lawyers who are able to draft grammatically correct pleadings and letters. Pleadings (Statements of Claim, Defence, etc.) are the first introduction of the case to a Judge. You always want to make a good first impression. You don’t want the Judge wondering what your lawyer is trying to say. You want to persuade the Judge, not confuse the Judge.
This is why grammar matters. This is why, as part of my role as a Mentor in the Law Practice Program, I emphasize with Candidates, you must write English at a professional level in order to be a professional in this Province.
Given we live in the digital age where proofreading can be accomplished by the click of a button, it is shocking to see the amount of poorly written documents by legal professionals.
Grammar matters. Grammar matters a lot when you’re paid to persuade people using the written word.
Inga B. Andriessen JD
One of the best reasons to incorporate is so that your business becomes an asset that you can transfer to the next generation. A well-organized corporation can be the primary source of wealth for families. Yet many small business owners don’t take the necessary step of following up their incorporation with succession planning for the business.
If you are the sole shareholder of a corporation, or the primary directing mind behind a corporation, then you need to have a plan in place. In addition to your own Will and the selection of an Estate Trustee, you need to have written documentation that sets out your directions so that your business does not lose value in the days following your death.
Those plans may include a separate Will for the corporation, key-person or business continuation insurance, powers of attorney and management or sale instructions. This planning will ensure that the business that has taken so much of your time and energy becomes something of value to those you leave behind, instead of a burden.
Businesses that don’t have a succession plan in place tend to devalue quickly upon the death of a principal. Instead of doing business during this critical time, companies stagnate, while friends, family and employees struggle to decide what happens next and try to figure out how to run things. In the event that the business is to be sold, by this point it will have lost much of its value. If the business is to continue to operate, it may have suffered a significant hiccup in operations that could jeopardize its continued existence.
Putting together a solid business succession plan will require a good partnership between you and your legal counsel. It will require some frank discussion about your intentions, your appetite for risk and some detailed planning regarding the inner-workings of your corporation. It will take some time and some money, but it is vitally important if your business is to have value after you pass away.
We’re here to help with this, feel free to reach out for more information.
Inga B. Andriessen JD