Recap: Startup Legals Workshop – Protecting Your IP & Incorporation

On March 13th, a workshop was held by the McGill Dobson Centre for Entrepreneurship in association with the Compass Start-up Legal Clinic; the topics being the different types of business organizations, how to incorporate, as well as how companies can protect their IP.

We had representatives from two companies in Montreal:

Jacqueline Rowniak – Associate at Dentons Canada LLP, a company that provides clients with legal services in common and civil law, in English and French.

Philippe-Olivier Daniel – Co-founder of Podlegal, a Montreal law firm that offers fixed-price and subscription-based legal services to entrepreneurs, SMEs and Start-ups.


On the topic of business organizations;

What are the different types?

1. Sole Proprietorship

  • An enterprise that is owned and run by one person and in which there is no legal distinction between the owner and the business entity.
  • It is simple, low cost (few legal fees) and involves the individual having full control.
  • However, there are limited financing options, unlimited liability upon the owner, and interested parties may have trouble with the credibility of the organization.

2. Partnership

  • A legal form of business operation between two or more individuals who share management and profits. The federal government recognizes several types of partnerships. The two most common are general and limited partnerships.
    • General – There is unlimited liability for each partner.
    • Limited – There is unlimited liability for the general partner but limited liability for the limited partner. The limited partner cannot be active in the affairs of the business.

3. Corporation

  • A legal entity that is separate and distinct from its owners.
  • There is limited liability for the shareholders and directors, tax benefits, and better access to financing opportunities.
  • However, it is costly due to start-up and ongoing administrative fees, as well as losses cannot be claimed personally.
  •  

When incorporating, what are some things you should know?

1. It can be done Federally (Provides global access) or Provincially (local and limited protection).

2. There are different stakeholders for the business:

  • Directors
    • Responsible for overall management and direction
    • Legal and fiduciary duty of directors to act in best interests of the company
  • Officers
    • Appointed by directors
    • Responsible for day-to-day management of the business
  • Shareholders
    • Owners of the company
    • Elects directors

3. It will require a shareholders agreement:

  • Agreement governing the relationship between the Corporation’s shareholders.

  • Advantages:
    • Protect the rights of the various shareholders
    • Restrict certain changes to the business, directors and officers
    • Regulate the way capital is raised
    • Resolutions can be disputed
  • Disadvantages:
    • Costly to implement
    • May be replaced if raising capital
    • Disputes over interpretation

4. There are different ways to finance the business:

  • Equity Financing
    • Equity raised through sale of shares
    • Convertible notes (Behaves as an “IOU” but debt can be converted to equity if not paid back.)
  • Debt Financing
    • Loans from banks/financial institutions, shareholders, friends and family
    • Requires some security for the creditor
    • Hypothec – immovable and movable – (Behaves similar to a mortgage)

On the topic of Intellectual Property (IP);

What is it?

(uncountable) Any product of someone’s intellect that has commercial value: a piece of literature, a painting, an invention, a trademark, a trade secret, etc. Works protected under intellectual property law, and accorded intellectual property rights such as copyrights and patents.

(countable) Any individual work that is protected under intellectual property law.

(Source: https://en.wiktionary.org/wiki/intellectual_property)

What are the 4 main forms of IP?

1. Copyrights

  • Copyright is a legal right, existing in many countries, that grants the creator of an original work exclusive rights to determine whether, and under what conditions, this original work may be used by others.
  • Examples:
    • Literary, musical, graphic, and sculptural works
    • Motion pictures and other audio-visual works
    • Derivatives of protected works, such as a sequel (i.e. the Star Wars movies)

2. Trademarks

  • Distinctive design, graphics, logo, symbols, words, or any combination thereof that uniquely identifies a firm and/or its goods or services, guarantees the item’s genuineness, and gives it owner the legal rights to prevent the trademark’s unauthorized use.
  • Examples:
    • Symbol Trademark – The McDonald’s golden arch
    • Character Trademark –  Geico’s talking gecko
    • Catchphrase Trademark – Donald Trump’s “You’re Fired” on The Apprentice

3. Patents

  • A patent is granted by the government. It gives you the right to exclude others from making, using or selling your invention.
  • Canadian patent applies within Canada for 20 years from the date you file the application.
  • The patent application is available to the public 18 months after you file it.
  • Patents cover new inventions (process, machine, product, composition of matter) or any new and useful improvement to an existing invention.
  • Three key points:
    • Must be new (not publicly available)
    • Must be functional and working (show utility)
    • Must not be obvious to someone skilled in the discipline

4. Trade secrets

  • Trade secrets include any valuable business information that derives its value from the secrecy.
  • Trade secrets can be very valuable to you whether you have developed new technology, designed original products, created the perfect recipe, or have a gold mine of customer data.
  • One of the most famous trade secrets is the Coca Cola formula—a well-guarded secret for over 100 years. The business value of the formula is why the company goes to extremes to keep it confidential.

Remember: Owning all intellectual property helps credibility with investors.

For more detailed information on Intellectual Property, please check out the World Intellectual Property Organization:
https://www.wipo.int/portal/en/index.html