Smooth Operator – Managing an Operating Business Successfully
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The document outlines key aspects of managing an operating business, focusing on employee versus contractor relationships, intellectual property protection, and effective board management. It discusses the criteria for classifying workers, relevant legal cases, and best practices for corporate governance, emphasizing the importance of documentation and accountability. The document also highlights the services provided by MEP Business Counsel, aimed at delivering tailored legal solutions to clients' business needs.
Smooth Operator – Managing an Operating Business Successfully
- 1. Smooth Operator – Managing an Operating Business MARCH 24, 2016 EMMANUELLE FREDERIC-POPA & MIKE WEBER 1
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- 3. Agenda q Employee Matters – Employee vs. Contractor q Protecting Your IP q Founders’ Dilemma – Managing your Board and Investors 3
- 4. Employee vs. Contractor: Why do we care? 4 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
- 5. Employee vs. Contractor: Test for contractor relationship 5 Is the worker truly operating his or her own business?
- 6. Employee vs. Contractor 6 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
- 7. Factors to Consider 7 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?
- 8. Factors to Consider 8 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?
- 9. Factors to Consider 9 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?
- 10. Factors to Consider 10 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?
- 11. Factors to Consider 11 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?
- 12. Factors to Consider 12 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?
- 13. 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 13
- 14. 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. 14
- 15. 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. 15
- 16. Founders’ Dilemma: Managing your board and investors Establish corporate governance best practices right from the start. 16
- 17. Founders’ Dilemma: Managing your board and investors Ø Each party plays its part: 17 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
- 18. Founders’ Dilemma: Managing your board and investors 18 Accountability and Transparency to all Stakeholders Books and Records Standard Form Contracts Documented Decision Making Process
- 19. Books and Records 19 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
- 20. 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. 20 Standard form contracts
- 21. 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. 21 Documented decision making
- 22. 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 22
- 23. 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. 23 meplaw.ca facebook.com/mepbusinesscounsel @meplaw MEP Business Counsel 604.669.1110
- 24. SR&ED – Documentation and Time Tracking Presented by Jeff Christie, Partner, Boast Capital
- 25. 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
- 26. I. OVERVIEW OF THE SR&ED PROGRAM
- 27. WHAT IS SR&ED?
- 29. QUALIFYING CRITERIA Must meet three criteria to qualify for SR&ED: 1. Technological Challenges 2. Technological Uncertainty 3. Technical Content or Iterations
- 30. 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…
- 31. 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?
- 32. EXAMPLES
- 34. WHO CAN CLAIM? SMEs = defined as generating less than $500K taxable net income in the prior fiscal year.
- 35. SR&ED BENEFITS Return rates for SME CCPCs:
- 36. SR&ED BENEFITS Return rates for non-CCPCs:
- 38. 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
- 39. 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?
- 40. 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.
- 41. TIME TRACKING
- 42. 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)
- 43. 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
- 45. WHEN TO CLAIM? 18 Months Past Fiscal Year End § Current Claim = Within 6 mo § Amended Claim = Within 7 to 18 mo
- 46. TURNAROUND TIMES From receipt of a complete claim: § CCPC Current Claim – 4 months § CCPC Amended Claim – 8 months § Non-CCPC Claim – 12 months
- 47. CRA REVIEWS CRA Review ≠ Tax Audit Multiple types of Reviews: § Desktop § Financial § Technical & Financial § First Time Claimant Advisory Service (FTCAS)
- 48. IV. THE DO’S AND DON’TS
- 49. THE DO’s Do: § Pay yourself and staff § Start time tracking and proper documentation now § Incorporate your company
- 50. THE DON’T’S Don’t: § Underestimate the importance of documentation § Focus on the business opportunity § Leave SR&ED claims until the last minute
- 52. JEFF CHRISTIE PARTNER 403 589 2809 | jchristie@boastcapital.com BoastCapital.com | @BoastCapital | @ChristieLuge
- 53. Presenter Bios 53 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.
- 54. Presenter Bios 54 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
Editor's Notes
- #28: Canadian R&D tax credit program administered by the Canada Revenue Agency (CRA) ~95% of claims are considered experimental development In 2013, the government provided over $3.4 Billion in assistance to 22,000 claimants SR&ED returns are called Investment Tax Credits (or ITCs) Federal budget 2015 – nothing’s changed
- #30: Work must meet three criteria: Technological Challenges Technological Uncertainty and how to overcome Technical Content or iterations CRA defines this as “Work performed for the purpose of creating new, or improving existing, materials, devices, products, or processes”
- #32: What’s eligible? Work must meet the three criteria Work must meet three criteria: Technological Advancement Technological Uncertainty Technical Content CRA defines this as “Work performed for the purpose of creating new, or improving existing, materials, devices, products, or processes” Can occur in various industries (both low and high tech)
- #33: Image recognition engine for orthotics Combining existing technology or software that was not intended to work together Developing new software Improving software to work with legacy systems Adapting a product for use it was not intended to be used for
- #35: As well as large and small companies Small to medium sized enterprises (SMEs) are defined as generating less than $500K income in that fiscal year.
- #36: Non-arms length subcontractors Salaries and sub-contractors MUST be Canadian-based Assuming all expenses are paid, SME’s qualify for refundable investment tax credits (or ITCS). This means they get a cheque back from the government
- #37: Foreign owned corporations, publically-traded, or Canadian controlled companies that are earning more than $500K in revenue per year Lowered the federal SR&ED return rate from 20% to 15% as of Jan 1, 2014 ITCs are non-refundable. They are simply tax credits that be carried back 3 years or forward indefinitely. Salaries and sub-contractors MUST be Canadian-based Non-arms length subcontractors
- #38: Extremely important as the CRA has become very strict on claims that do not fulfill their requirements.
- #39: Technical documentation needs to be: Contemporaneous – documented at the time of the experimentation. Highlight technical obstacles or challenges Dated Examples of technical documentation: Engineering notebooks, Versioning Control on software Iterations, Whiteboard images, Emails. Just be aware. Some agile software development teams have needed to implement a better documentation system for their SR&ED eligible projects. Each company works very differently - we can help you set up an efficient system for your company.
- #40: Technical documentation needs to be: Contemporaneous – documented at the time of the experimentation. Highlight technical obstacles or challenges Dated Examples of technical documentation: Engineering notebooks, Versioning Control on software Iterations, Whiteboard images, Emails. Just be aware. Some agile software development teams have needed to implement a better documentation system for their SR&ED eligible projects. Each company works very differently - we can help you set up an efficient system for your company.
- #41: Technical documentation needs to be: Contemporaneous – documented at the time of the experimentation. Highlight technical obstacles or challenges Dated Examples of technical documentation: Engineering notebooks, Versioning Control on software Iterations, Whiteboard images, Emails. Just be aware. Some agile software development teams have needed to implement a better documentation system for their SR&ED eligible projects. Each company works very differently - we can help you set up an efficient system for your company.
- #42: Recommendations: Track 100% of your time. This goes beyond your “SR&ED specific” projects. Track your admin time, your project management time, etc.
- #43: Recommendations: Track 100% of your time. This goes beyond your “SR&ED specific” projects. Track your admin time, your project management time, etc.
- #44: Recommendations: Track 100% of your time. This goes beyond your “SR&ED specific” projects. Track your admin time, your project management time, etc.
- #45: Share what needs to be tracked from a financial/accounting perspective and give some tips on how to do that
- #46: 18 Months past the fiscal year end Current Filing= 6 Months to file taxes after fiscal year end Amended Filing= 7 Months to 18 month past fiscal year end
- #47: CRA’s success rate at meeting these turnaround times is 96% The deadline for companies with a December fiscal year end is June. So if you have a December year end and you want your claim turned around in less than 6 months, now’s the time to file your claim. The CRA only took 68 days, on average, to process a CCPC current claim in 2012.
- #48: The CRA only reviews SR&ED expenditures and technical work. FTCAS – new service launched Jan 2014, it is an in-person meeting with the CRA to review your first submitted claim and to set you up for success for the next claim. Will get reviewed every 4/5 years Most important way to support a review claim is documentation and time tracking.
- #50: Recommended approaches for claiming R&D grants: Pay yourself or staff (sweat equity is $0 equity) SR&ED require spend / NRC – solid business model Incorporate company and ensure clear IP ownership. Company vs contractor
- #52: I’ll send you a link to access the Ultimate SR&ED Guide. The guide goes into detail on documentation, calculations and more. It’s an interactive Guide that we will update as the program changes The CRA has strict documentation requirements, which we cover in the guide.