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By Andrew Roy, business lawyer and founder of Roy Legal in Calgary, Alberta
AI is making it faster and cheaper for bad actors to find security weaknesses and work out how to exploit them. For business owners, that changes the risks involved in operating a website, handling customer information, and relying on technology suppliers. It should also change the contracts businesses are willing to sign. Liability limits, security commitments, indemnities, and exclusions of loss deserve closer attention when a weakness in someone else’s technology could expose your business to losses it cannot absorb. The October 2026 PHP and eMudhra security disclosures illustrate the problem. Both involve infrastructure that many businesses rely on without giving it much thought. Their consequences can extend far beyond the organizations responsible for the underlying technology. Why a supplier’s security problem can become your business problem A customer sees your business and your website. Behind that website may sit a hosting provider, a content management system, a programming language, digital certificates, and connections to databases and other services. Those dependencies can overlap. Two suppliers may appear independent while relying on the same underlying component. A weakness in that component can therefore affect several services at once. For an owner, the consequences are practical. An unavailable checkout can interrupt sales. A compromised customer database can require investigation and restoration. Staff may need to stop ordinary work to coordinate suppliers, answer customers, and manage the response. The contractual exposure can compound the operational problem. Your customer agreement may contain commitments about security, confidentiality, availability, and reimbursement. Your agreement with the supplier behind the service may offer much narrower protection. That difference deserves attention before an incident reveals how much risk the business has accepted. What the PHP and eMudhra disclosures mean for businesses PHP: a functioning website can still be compromised PHP is a programming language used beneath many websites and applications, including WordPress sites. On October 21, 2026, PHP released patches for critical vulnerabilities that could, under certain conditions, allow attackers to run code on affected servers. PHP Foundation’s announcement Researchers also demonstrated the ability to read sensitive information from server memory, including passwords, authentication tokens, and access keys. Those credentials can connect a website to databases and other business services, extending the potential exposure beyond the website itself. Wiz’s research A website might continue operating normally despite a compromise. An attacker able to execute code could potentially create a backdoor for later access. Applying an update would not necessarily remove that access, recover copied information, or make stolen credentials safe again. The UK’s National Cyber Security Centre specifically advised checking for evidence of compromise and attacker-installed backdoors where systems could not be updated or disabled promptly. NCSC guidance Older websites make this harder. A site may remain online after its developer has left or its maintenance arrangement has ended. Updating it may require repairs, testing, or migration. An available patch offers little practical protection if nobody is responsible for applying it. eMudhra: weaknesses in the systems that establish online trust Digital certificates help software establish that it is communicating with the intended website or service. Customers generally rely on that process without knowing which organizations provide the underlying assurance. The eMudhra disclosure concerned weak private keys associated with intermediate certificate authorities. The keys had been recoverable since April 2025, roughly eighteen months before public disclosure. Someone who recovered them could create certificates impersonating other institutions, including institutions that were not eMudhra customers. Researchers’ disclosure Against affected software, an attacker able to intercept or redirect a connection could potentially read or alter communications. Public certificate logs and checks enforced by major browsers provided protection against this particular attack, but other software did not necessarily have those protections. Whether attackers exploited that exposure before discovery remains unknown. Google’s advisory The broader business concern is trust. Online transactions depend on mechanisms customers cannot personally inspect, operated by organizations they may never have heard of. A weakness in one part of that system can expose businesses and customers that did nothing to cause it. How AI makes security weaknesses cheaper to exploit Bad actors can use AI to investigate weaknesses with substantially less time and effort than some of this work previously required. Reviewing code, testing possibilities, and troubleshooting unsuccessful attempts can become faster and cheaper. That changes which attacks are worth pursuing. A weakness that once looked too difficult or time-consuming to investigate may become an attractive opportunity. An attacker can explore more possibilities with the same resources, including older software, neglected websites, and obscure interactions between systems. AI can help with both finding a weakness and turning it into a usable attack. It can examine code, suggest where information might be exposed, generate tests, and help work through failed attempts. The PHP research demonstrates that capability. Researchers combined human expertise with AI to develop and adapt working exploits through repeated testing and debugging. Their findings show how AI can reduce the practical barriers to exploiting longstanding weaknesses. Wiz’s research Businesses still need people to investigate exposure, coordinate suppliers, test updates, and deploy fixes. That work takes time even as the cost of finding and exploiting a problem falls. Your technology may remain unchanged while the economics of attacking it become considerably more attractive. How business contracts should respond to changing cyber risk Keep liability caps meaningful A liability cap sets a contractual limit on the amount a party may owe for covered claims. Its usefulness depends on what falls within it. Businesses should be more cautious about accepting broad exceptions that leave confidentiality breaches, data breaches, or security indemnities outside the cap. Those exceptions can remove protection against precisely the losses that could threaten the business. Where greater exposure is justified, a higher but finite limit for defined security claims may be more appropriate than unlimited liability. The wording should explain how that limit interacts with the general cap and whether related claims share one aggregate limit. An owner should understand the maximum exposure the agreement is intended to create and the claims that remain outside it. Identify the losses being excluded or accepted Businesses should not assume that excluding “consequential loss” automatically excludes every claim for lost profits. Contractual wording and context matter. In Atos IT Solutions v. Sapient Canada Inc., the Ontario Court of Appeal upheld an interpretation under which the particular exclusion did not prevent recovery of profits lost on the subcontract itself. Atos, paragraphs 68–72 and 82–8. Where the intention is to exclude lost revenue, business interruption, or other particular losses, address those categories expressly. Investigation, data restoration, customer notification, and replacement services also need deliberate treatment. Decide which costs are recoverable, what triggers payment, and which limit applies. Customers need meaningful remedies, while suppliers need exposure they can realistically bear. Make indemnities fit the liability framework An indemnity can require one party to cover specified losses in defined circumstances. Its scope needs to work with the liability cap and exclusions. A carefully negotiated limit may offer little protection if a separate reimbursement provision requires payment of the same losses without those restrictions. The agreement should identify the events triggering payment, the losses covered, and the applicable limits. The customer’s own response costs and claims brought against it by other people also deserve separate consideration. Defence costs and control over settlements should be addressed where relevant. Make security promises the business can deliver An absolute promise that a system contains no vulnerabilities deserves considerable caution. Defined obligations to maintain controls, monitor dependencies, and respond to newly discovered weaknesses provide a more practical basis for accountability. Contracts should allocate responsibility for vulnerability notices, emergency patching, certificate replacement, customer cooperation, and temporary suspension. They should also address resulting costs and the options available if a serious problem continues. For critical services, consider a process for reviewing material changes in the threat, the controls required, and any resulting changes in cost or scope. The process can respond to the vulnerability and its impact without requiring proof that an attacker used AI. Who should approve cyber risk within the business? Significant cyber commitments should receive input from the people responsible for legal terms, technology, and finances. In a smaller business, that may mean the owner, external counsel, and the IT provider. Departures from standard liability limits should require documented approval at an appropriate senior level, with board involvement where the exposure warrants it. The decision should account for potential losses, available insurance, operational controls, and the business’s ability to absorb the remaining exposure. Critical systems also need accountable owners, funded maintenance, and a process for escalating unresolved vulnerabilities. This approach is consistent with the Canadian Cyber Centre’s guidance on assigning security responsibilities, approving risk, and reviewing controls as circumstances change. Canadian Cyber Centre guidance When walking away is the better business decision Winning a contract is valuable only if the return justifies the obligations accepted. Narrowing the service, improving controls, or negotiating different terms may bring the exposure within an acceptable range. Where those options are insufficient, declining the deal may be the better commercial decision. That assessment should include the business’s wider commitments. One underlying weakness could create exposure under several customer agreements. An owner needs to understand the combined risk, rather than reviewing each contract as though it exists alone. AI is changing how easily overlooked weaknesses can become practical threats. Business owners should revisit their dependencies, contractual promises, and liability limits before an incident tests them. Roy Legal helps business owners review commercial agreements and assess whether the risks they are accepting make sense for the business.

This article provides general information only and is not legal advice. Reading or relying on it does not create a solicitor-client relationship with Andrew Roy or Roy Legal. Laws and their interpretation may change, and their application depends on the circumstances. Obtain legal advice about your specific situation before acting on this information. © 2026 Andrew Roy. All rights reserved.

By Andrew Roy, business lawyer and founder of Roy Legal in Calgary, Alberta

Before buying, restructuring, or expanding a business, it is worth comparing the full legal and accounting costs with the value the plan is realistically expected to create. The budget needs to cover the initial advice and implementation, the ongoing costs of the arrangement, and enough cash to keep the business operating. Sometimes, those costs exceed the available capital, the purchase price, or even the benefit the owner expects to gain over several years. I have been noticing a pattern in my practice. Someone has an ambitious idea. By the time we speak, the plan already involves several companies, operations in different countries, regulatory questions, and arrangements for future investors. They may not yet have spoken with an accountant, a business adviser, or someone familiar with financing that kind of venture. They have thought carefully about what they want to build, but have had much less opportunity to understand what it will cost to build and maintain it. That is understandable, especially for someone who has not worked with lawyers and accountants before. A founder cannot be expected to know every issue in advance. But the cost of dealing with those issues belongs in the business plan. What costs belong in the budget? Legal and accounting costs can arise at several stages: assessing whether the plan works, putting the arrangements in place, and maintaining them once the business is operating. Depending on the project, that may involve advice on ownership and tax, reviewing a business being acquired, preparing agreements, addressing regulatory requirements, and ongoing filings and accounting. BDC distinguishes between one-time and recurring expenses in its guidance on estimating a new business’s financial needs. Professional fees can appear in both. An affordable initial setup does not necessarily mean an affordable arrangement over time. Consider a hypothetical founder planning to launch a business in Canada and the United States. They want a company in each country and an ownership structure ready for future investors. There is interest from potential customers, but sales are still uncertain and funding is limited. Before committing, the founder needs to understand why each part of the structure is needed, what advice and documents it will require, and what it will cost to maintain. If setting up the structure absorbs much of the available cash before the first sale, what is left for developing the product, finding customers, and delivering the work? Sometimes, as I encounter in my practice, there is no cash available to fund the initial work at all. And if the continuing costs consume much of the expected profit, how does the business become sustainable? Does the expected value justify the cost? A business purchase raises similar questions. The purchase price may look affordable, but the buyer also needs to budget for legal and accounting work, financing, and integration. BDC recommends including integration and financing costs in the preliminary assessment of a business purchase. I would include legal and accounting costs in that budget before signing a letter of intent. Once those costs are accounted for, the question becomes whether the opportunity still makes sense. Revenue alone will not answer that. A business can generate substantial sales while leaving little after its expenses. Timing matters too. Professional work and setup costs may need to be paid well before customers start paying. A useful starting point is to put a few things on paper: What specific benefit is the purchase, structure, or expansion expected to produce? What revenue, profit, or other value could reasonably follow, and over what period? What will it cost to assess, implement, and maintain the plan? How much cash will remain for the business’s other needs? How will the costs be funded if growth takes longer than expected? BDC recommends testing cash-flow projections under optimistic, likely, and pessimistic scenarios. This helps an owner see how much depends on everything going to plan and whether the business could manage a slower start. Can a simpler plan achieve the objective? With those answers, the scope of the project may change. Perhaps the business can start in one market. A proposed reorganization might wait until a particular commercial milestone. A simpler arrangement might achieve the immediate objective without committing the business to costs it is not ready to carry. Whether those options work needs to be assessed. Some work is necessary before the business can operate, and delaying it can create problems of its own. The purpose of early advice is to establish what is needed now, what can wait, and what the consequences of waiting would be. For an initial discussion with advisers, it helps to bring the commercial objective, the proposed steps, any existing agreements or company information, the available budget, and the expected timeline. Even where the plan is still developing, that gives the discussion a practical starting point. What if the business cannot afford the advice? Sometimes, after considering simpler or staged options, an owner still wants to proceed but cannot afford all the advice the project warrants. That leaves another cost to consider: the potential consequences of proceeding without that work. An overlooked obligation, an unsuitable agreement, or a structure that later needs to be unwound could cost considerably more than the advice would have. Legal advice cannot remove every risk, but comparing professional fees with spending nothing leaves out those possible consequences. The owner is accepting uncertainty about issues that have not been properly assessed. An owner may decide to accept some of that risk. The question is whether they understand it well enough to make that decision, and whether the business could withstand the consequences. Where a legal requirement must be met, limited funds may mean changing or postponing the plan. High costs can still be justified. A business may need to meet an essential requirement, protect a valuable asset, address a serious risk, or invest in a credible opportunity that will take years to develop. Its current revenue or valuation will not capture all of that. But there should be a reason for the expenditure and a realistic way to fund it. I like ambitious ideas. I also want the business to have enough money left to pursue them. Understanding the cost of the plan belongs near the beginning of that conversation. Planning a business purchase, reorganization, or expansion? Contact Roy Legal to discuss the legal work your plan may require.

This article provides general information only and is not legal advice. Reading or relying on it does not create a solicitor-client relationship with Andrew Roy or Roy Legal. Laws and their interpretation may change, and their application depends on the circumstances. Obtain legal advice about your specific situation before acting on this information. © 2026 Andrew Roy. All rights reserved.

AI-generated illustration. Risk Appetite, Risk Tolerance and Risk Capacity: What’s the Difference? By Andrew Roy, Founder of Roy Legal Risk appetite is the risk a business is willing to take to achieve its goals. Risk capacity is what the business can actually support, given its resources and obligations. Risk tolerance sets the acceptable variation from specific business objectives. For business owners, these distinctions help answer three practical questions: Is this an opportunity we want to pursue? Can we afford the consequences if it goes wrong? What boundaries should guide our decisions? Concept What it means A practical business question Risk appetite Willingness to take risk in pursuit of a goal Are we willing to depend more heavily on one customer to grow? Risk capacity Ability to support risk, given resources, capabilities and obligations Could we cover wages and other commitments if that customer paid late? Risk tolerance Acceptable variation from an objective How much variation in costs, orders or payment timing is acceptable? These explanations adapt the Financial Stability Board’s definitions of appetite and capacity for financial institutions, together with COSO’s performance-based approach to tolerance. Terminology varies across frameworks, so a business should make clear how it uses these terms. FSB, pages 2–3; COSO, pages 5 and 19 The longer I work with businesses, the more I see how their approach to risk shapes their success. Owners often have sound judgment developed through experience. The difficulty is that their approach may remain largely in their own heads. As the business grows, other people start making decisions too. A sales manager agrees to longer payment terms. A department hires ahead of demand. An operations manager commits to new equipment. Each decision may look reasonable on its own, while together they leave the business with little room for a setback. A shared approach to risk helps people understand how their decisions affect the whole business. Financial institutions provide a useful example of formal risk oversight. For the federally regulated institutions covered by its Corporate Governance Guideline, OSFI sets expectations for a risk appetite framework, board oversight and a chief risk officer or equivalent. It also provides flexibility for smaller, less complex institutions. OSFI’s Corporate Governance Guideline, Part III An ordinary small business can borrow elements of that discipline and adapt them to its circumstances. Consider a business planning to open a second location. Its risk appetite might include accepting lower profits and uncertain returns while establishing the new location. The owners believe the growth opportunity justifies that uncertainty. Its risk capacity depends on whether it has enough cash, staff and management support to open the location while keeping its existing operations running. Could it support both locations if the new one takes longer than expected to become profitable? Its risk tolerance sets acceptable variation from the expansion plan. How far can opening costs exceed the budget? How far can sales fall below the forecast? How much later than planned can the location reach break-even? Management should establish review triggers that leave time to respond before the business exhausts its capacity. Reviewing a slow start while cash is still available is a different conversation from reviewing it when payroll is due and the reserve is gone. BDC makes a related point in its guidance on financing growth: spending operating cash on expansion can create a cash-flow squeeze if revenue subsequently weakens. BDC on financing growth A major customer contract shows how the same concepts apply to everyday commercial decisions. Suppose a business is offered a substantial contract with a new customer. To deliver the work, it would need to expand operations, hire staff and buy equipment. The contract could significantly increase revenue, but it would also create ongoing costs supported largely by one customer. If that customer pays late or reduces its orders, the business still has wages, rent and equipment payments to cover. Its risk appetite concerns whether it is willing to accept that dependence and those commitments in pursuit of growth. Its risk capacity concerns whether it can support the consequences if things do not go as planned. Can it fund the expansion before payments start? Could it cover the additional costs if orders fall short or payments are delayed, while continuing to meet its existing obligations? BDC recommends incorporating scenarios such as cancelled orders or a major customer’s failure into cash-flow planning. BDC on cash-flow scenarios Its risk tolerance gives the plan measurable boundaries. Management could identify acceptable variation from the expansion budget, expected order volumes and agreed payment dates. Review triggers then establish when someone needs to act. A payment delay approaching the business’s tolerance might prompt management to revisit planned hiring, discretionary spending or the assumptions behind further expansion. The distinction matters: a business may be willing to accept a major customer opportunity but lack the capacity to support it on the proposed terms. The broader industry also matters. Several customers may provide less diversification than their number suggests if they all depend on the same sector. A downturn could affect them at the same time. For another business, the main exposure might be dependence on a key employee, a critical supplier or one technology platform. Cash reserves alone will not solve every problem. Risk capacity also includes the people, systems and operating capability needed to respond. To set useful risk tolerances, start with a specific objective and a way to measure performance against it. Then decide what variation is acceptable and when management should review the situation. Those boundaries should reflect the business’s capacity and leave room to respond. For a smaller organization, this can begin with a short written record of its main exposures, agreed boundaries, responsible people and review triggers. Bring it into existing management discussions and revisit it when a significant customer, investment or operating condition changes. That approach reflects ISO’s guidance to tailor risk management to the organization and integrate it into its activities, with clear responsibilities and appropriate resources. ISO’s introduction to risk management Owners and executives should also make room for people to question the assumptions behind a decision. Someone pursuing an opportunity may see its potential clearly. Someone responsible for cash, delivery or staffing may see a constraint that deserves attention. A business should be able to explain which risks it has chosen, why they are worth taking and what would cause it to reconsider. That understanding should be shared by the people making its decisions. Roy Legal advises businesses on commercial contracts, governance and regulatory compliance. If you are considering an expansion, a major customer agreement or another significant commitment, we can help you assess the legal obligations and risks before you commit. This article provides general information only and is not legal advice. Reading or relying on it does not create a solicitor-client relationship with Andrew Roy or Roy Legal. Laws and their interpretation may change, and their application depends on the circumstances. Obtain legal advice about your specific situation before acting on this information. © 2026 Andrew Roy. All rights reserved.

AI Generated Image A founder sees a market that is expensive, fragmented or difficult to use. Buyers and suppliers already exist, and an online platform could make it easier for them to find each other, transact and build trust. The difficulty is that the proposed business does not fit comfortably within the existing rules.
Airbnb and Uber are familiar reference points for this kind of ambition. Their histories should not be reduced to a single formula, but the opportunity they suggest is appealing: build something people want, grow quickly, and help change the rules governing the market. It’s an approach I see regularly with my startup clients, and I think there is still room for it. To be successful, however, the business plan needs to explain why the rules can change and how the company will reach a workable position. The platform’s value needs to survive regulation The value of a platform starts with what it makes possible. It might help customers find a service that was previously hard to locate, make transactions more reliable, or bring underused resources into the market. The OECD’s research on platforms identifies reduced search and transaction costs, trust and network effects as important parts of their economics. Those advantages can survive regulation. A service that saves customers time and gives suppliers better access to demand may remain attractive after licensing, reporting or insurance costs are included. That is a completely different proposition from a business whose appeal depends heavily on avoiding costs that its competitors must bear. For a founder or investor, this distinction deserves attention early. The economic case needs to account for customer demand, supplier participation and margins under a plausible regulatory framework. Some changes may leave a useful business intact; others may remove the features that made it viable. That assessment need not assume every existing rule will remain in place. Some ventures are worth pursuing precisely because they offer a better way to organise a market and a persuasive case for changing its rules. Building support for regulatory change Legal scholars Elizabeth Pollman and Jordan M. Barry describe this as regulatory entrepreneurship: changing the legal environment forms a substantial part of the business plan. Growth can support that effort. Customers may become advocates, suppliers may depend on the new source of business, and revenue or investment may help fund the work needed to secure change. That is a serious commercial strategy, but it also means the founder has to understand who can change the relevant rule, what would persuade them, and who may oppose the change. Evidence that customers like a service helps, but the interests of people affected by the service also matter. For growth to help change a rule, support needs to reach the people who can change it. Users who rely on a service for their income or daily lives may have a stronger reason to defend it than occasional customers. Their location matters too. A large customer base spread across many markets may offer less support in a particular city or province than the headline numbers suggest. Growth can also strengthen opposition. If a service creates problems for people outside the transaction, expanding it may give those people more reason to demand restrictions. The case for change becomes stronger when the company can explain those effects and show how its proposed model addresses them. Liability and the limits of user contracts Allocating responsibility to users also needs to work in practice. The obligation to comply, exposure to a claim and the cost of a loss are different things. Contractual protection depends on enforceability and how the business actually operates, while some duties may still fall directly on the company. B.C.’s short-term rental law, for example, puts registration-checking duties on platforms themselves. Even where a reimbursement clause is enforceable, it may offer little commercial protection if the user has neither sufficient assets nor applicable insurance. Shifting exposure can also change participation. If hosts, drivers or sellers face penalties they cannot bear, the platform may lose the supply its growth depends on. Enforcement, penalties and timing The consequences can change the whole calculation. A fine the company can absorb presents a different risk from accumulating daily penalties or an order stopping operations. Depending on the applicable law, exposure may also extend personally to founders or executives and may include imprisonment. These outcomes need to be distinguished from ordinary licence fees. The existence of a financial penalty does not establish that the company can pay and continue. Uber’s early experience illustrates the distinction. In December 2015, the City of Calgary reported that Uber had agreed to keep its operations suspended while a temporary injunction remained in effect. The consequence included losing the ability to serve that market while the regulatory position was being resolved. The timing is just as important. A plan to build support over two years is fragile if the company cannot survive an interruption next month. The ability to continue operating during a dispute and the money available to fund a delay are therefore central to the growth plan. That is the practical significance of whether regulators have “caught up”. Where enforcement can interrupt the disputed activity before meaningful support develops, the company has less opportunity to turn growth into influence. A plan that depends on a slow response needs a sound basis for that assumption. Funding and political capital The amount of money behind the company matters, but so does who is providing it. Capital committed to a successful launch may be insufficient for a prolonged dispute, delayed revenue or a change in the business model. The investors’ capacity and willingness to fund that longer effort become part of the strategy. Some backers may also bring political capital: relevant relationships, credibility with decision-makers, and experience presenting a case for change. That can help a company understand the process and get its proposal heard. Those relationships need to matter in the relevant jurisdiction, and the investors need to be willing to use them. A prominent name on the investor list is not enough to establish either. Making the proposed change concrete The proposed change also needs to be concrete. “The rules are outdated” leaves a decision-maker with a problem to solve. A founder should be able to explain what should replace them, how the new approach would address the concerns behind them, and why the resulting market would work better. For investors, progress on that issue belongs alongside customer growth in the investment case. Expansion is more valuable when it is accompanied by a clearer basis for continued operation. A narrower permitted service may still be worth building, provided enough demand, supply and margin remain. I think there is still room for companies to pursue that opportunity. A useful platform can give people a reason to support a different way of organising a market. The strongest version of the strategy builds demand and the case for change together, with a clear view of who carries the risk, what an adverse decision could do, and whether the company and its backers can see the process through. If you are developing a platform business, contact Roy Legal to discuss the rules affecting the business and how they fit into your launch or growth plans. This article provides general information only and is not legal advice. Reading or relying on it does not create a solicitor-client relationship with Andrew Roy or Roy Legal. Laws and their interpretation may change, and their application depends on the circumstances. Obtain legal advice about your specific situation before acting on this information. © 2026 Andrew Roy. All rights reserved.

Your business has found a cloud service that will make work easier. Staff are using spreadsheets and separate email accounts, and the new software would give them a shared record of customer enquiries, billing information and previous conversations. The price is reasonable. There is a discount available if you sign soon. You send the agreement to your lawyer for a quick review. It seems like a small purchase. Then the questions start. What information will go into the system? Who will have access? What can the supplier do with it? Has anyone reviewed the software’s AI features? Those questions can make a straightforward purchase feel unnecessarily complicated. But the price of the software says very little about the privacy exposure your business is accepting. An inexpensive service could hold years of customer records, and a problem involving those records could cost considerably more than the subscription. The review starts with understanding what your business intends to put into the system. Customer contact details are one thing. Years of correspondence, attachments and staff notes may contain considerably more personal information than anyone considered when choosing the software. Does the business need to import all of those records? Which employees need access? Will the information be used only for customer service, or will other teams use it for marketing, analysis or another purpose? These are decisions about how your business handles information. The supplier’s agreement may not answer them, but the answers affect whether the service and its protections are suitable. Your business also needs to understand the supplier’s role. Can it use customer information for its own purposes? Can other providers access the records? What happens to the information when you stop using the service? These are among the issues identified in joint Canadian privacy-regulator guidance on cloud services. AI features add further questions. Will the supplier use customer information or employee prompts to train or improve its models? Where are those prompts and outputs retained? Canadian privacy regulators expressly identify the reuse of personal information from prompts for model training as a secondary purpose that providers should explain. For an Alberta business subject to the Personal Information Protection Act, or PIPA, using a supplier does not end the business’s responsibilities. Section 5(2) makes an organization responsible for its service provider’s compliance with the Act in respect of the services provided. Where the information is handled also matters. If your business uses a service provider outside Canada, PIPA section 6(2) requires policies addressing the countries where information is or may be handled and the purposes for which the provider is authorized to collect, use or disclose it. The applicable rules can change with the business and its activities. Commercial information flows across provincial or national borders can engage federal privacy law. Operations involving Quebec or the EU may also require a separate review under Quebec’s private-sector privacy law or the EU’s General Data Protection Regulation. The analysis depends on the business’s activities and connections to the jurisdiction, as well as the information involved. Even after the agreement has been reviewed, someone needs to put the protections into practice. The supplier may offer access restrictions that your business must configure. Someone needs to decide which employees can see particular records and remove access when employees change roles or leave. That work may involve the business owner, IT, legal counsel and whoever manages the records. In a smaller business, one person may perform several of those functions. What matters is that the decisions are made and someone is responsible for carrying them out. When those arrangements are missing, a contract review can expose gaps in the business’s existing practices. That is how a request for a quick review becomes a larger privacy project. The consequences become clearer if something goes wrong after the software is in use. Suppose the supplier reports that someone may have accessed customer information without authorization. Your business needs to establish which records were involved, what happened and who could be affected. Under PIPA section 34.1, an organization must notify Alberta’s Commissioner without unreasonable delay where a reasonable person would consider that the loss, unauthorized access or unauthorized disclosure of personal information under its control creates a real risk of significant harm to an individual. Assessing that obligation may depend on information your business needs from the supplier. There may also be investigation costs, legal fees, customer communications and claims. If the incident interrupts the service, employees may lose access to records they need to do their work. Insurance then becomes relevant. Cyber insurance may address certain response expenses or privacy claims, but whether it responds to a particular incident, and how much exposure remains with your business, depends on the policy and the facts. A significant incident can therefore demand attention from finance, communications, senior management and the board. The original purchase price does little to explain the scale of the resulting problem. This helps explain why privacy work can be undervalued. At the point of purchase, its most visible effects may be additional questions and a delay in signing. The value of understanding and addressing the exposure can be harder to see until something goes wrong. A useful starting point for legal advice is the proposed agreement and a short description of how your business plans to use the service. Counsel can help identify the missing information, assess the contractual protections and explain what needs to be resolved before you commit. The review should leave your business with decisions it can put into practice. Calling it a “small deal” does not make the privacy exposure small. Discounted pricing is a poor reason to commit your business to risks it has not understood. If your business is considering a software purchase, contact Roy Legal to discuss the agreement and your intended use.
This article provides general information only and is not legal advice. Reading or relying on it does not create a solicitor-client relationship with Andrew Roy or Roy Legal. Laws and their interpretation may change, and their application depends on the circumstances. Obtain legal advice about your specific situation before acting on this information. © 2026 Andrew Roy. All rights reserved.

Andrew Roy Legal assists tech-enabled startups throughout their journey from incorporation to IPO. Get in touch today to discover how we can support you. Welcome to Part 4 of our series, Legal Fundamentals for Canadian Technology Startups. Our aim is to provide a practical legal roadmap for launching your Canadian tech startup. Don't miss out on Part 1 Exploring Business Structures for Canadian Tech Startups: Sole Proprietorship and Partnership, Part 2 Exploring Business Structures for Canadian Tech Startups: The Corporation, and Part 3 Seed Financing 101: Understanding SAFEs and Convertible Notes for Tech Startups Our series has so far explored financial instruments crucial for startup growth phases, including SAFEs and Convertible Notes. These instruments are essential in early stages where a startup’s valuation is yet to be established. We now shift our focus to a cornerstone of later-stage financing: priced rounds and preferred shares. Understanding the Startup Financing Ecosystem: Trends and Insights A deep dive into priced rounds and preferred share financing necessitates an understanding of the broader Canadian tech startup ecosystem. Despite a 34% decrease in venture capital investment to $6.9 billion across 660 deals in 2023, data from the Canadian Venture Capital and Private Equity Association (CVCA) shows that investment levels remain higher than those recorded in 2019 and 2020. This trend indicates a cautious but significant commitment within the VC sector, suggesting a gradual realignment with pre-pandemic investment patterns. Kim Furlong, CEO of CVCA, anticipates a continued focus on AI and cleantech sectors, along with a careful approach to VC investing in 2024. The emphasis on profitability over mere growth indicates a mature, discerning investment landscape. AI investments, in particular, are highlighted as a strategic priority. For entrepreneurs exploring fertile financing avenues, YC Combinator's Request for Startups identifies 20 sought-after concepts, with AI in Robotics taking the lead. This is exemplified by Figure, a robotics company, securing $675 million at a $2.6 billion valuation. For more insights into VC trends, consider following my LinkedIn for daily updates. Now, let’s delve into Startup law 101: priced rounds and preferred share financing. Startup Law 101: Priced Rounds Explained Priced rounds represent a crucial milestone in a startup's funding lifecycle, typically occurring when investments exceed $2M. These rounds involve significant changes in terms and financing structures: Series A is initiated once a startup demonstrates measurable traction, evidenced through revenue generation and customer base expansion. Series B financing is typically sought when a startup has successfully established product-market fit. Series C often represents the final financing stage before a startup contemplates an Initial Public Offering (IPO) or acquisition. Series D may be pursued to enhance valuation pre-IPO or to capitalize on emerging opportunities requiring additional funding.
At these stages, a startup undergoes "pricing," where it negotiates and establishes a valuation on its company. This valuation in turn activates any preceding SAFEs or convertible notes from pre-seed or seed financing rounds. Unlike earlier rounds, however, preferred shares are the legal instruments used for priced rounds. Venture Capitalists (VCs), who generally lead these later rounds, insist on these preferred shares because of the enhanced protections that they afford in terms of equity ownership. Preferred shares are expensive because they need to be closely negotiated and entail significant legal documentation. Startup Law 101: Delving into Preferred Shares Preferred shares differ from common stock or shares because they offer some preferential treatment to the investor. These “preferences” can be manifested in different ways and include a variety of different rights. While this list is not meant to be exhaustive, some of the more common rights are as follows: Liquidation Preferences: Investors often negotiate liquidation preferences to ensure they recoup their investment before other shareholders in the event of a sale or liquidation. The current market tends to set the liquidation preference at "1x, non-participating," which means that investors get back their investment amount but do not participate in further distributions. Anti-dilution Protections: To protect against dilution in future funding rounds, investors will negotiate anti-dilution clauses. These provisions adjust the conversion price of preferred shares if new shares are issued at a lower price, ensuring investors maintain their ownership percentage​ Conversion Rights: Preferred shares are often convertible into common shares at the investor's discretion, potentially upon specific triggers such as an IPO or by mutual agreement​. Optional conversion rights are generally non-negotiable and allow an investor to convert their share of preferred stock into common stock on a one-to-one-basis. Dividend Rights: While not always a focus in startup financing, preferred shares may have provisions for dividends, which are usually non-cumulative and paid only if declared by the board​ Voting Rights: These rights modify the voting rights of the preferred shareholder relative to common shareholders and contingent upon agreement and negotiation. As for what's market, VCs often negotiate for terms where all shares vote together as a single class on an "as-converted basis." As-converted basis means they do not require separate approval from preferred stockholders to approve changes like an increase in authorized common shares. Protective Provisions: These provisions typically require that a certain percentage (often a majority, but sometimes a supermajority) of the preferred stockholders vote to approve certain actions. Some actions that are typically included are dissolving the company, taking on debt, and changing the size of the board. Drag-along Rights: These rights enable majority shareholders to force minority shareholders to join in the sale of a company, ensuring all can benefit from a collective sale. The Term Sheet These preferential terms and conditions are included in a term sheet, which is the most important document that is negotiated during a priced round. The details of how to properly negotiate a term sheet is significant. The blog Strictly Business put out a comprehensive 20 part series on this matter. On the other hand, if you are a visual learner and would like to see a typical model document of a term sheet, the Canadian Venture Capital & Private Equity Association provides a free model term sheet, updated to November 2020. Pro forma cap table When negotiating a term sheet, you should also be developing a pro forma cap table for the entire round. The pro forma cap table is designed to show you what your equity looks like post-financing. It’s advisable to built it up at the term sheet stage because, as negotiations evolve, you can see the impact of the adjustments on your equity interest post-closing. A pro forma cap table will normally include the shareholder, their title, the amount of stock owned, the type of stock owned, the equivalent of the preferred stock in common stock, the full diluted percentage owned, and stock options and warrants. A few examples of pro forma cap tables can be readily found here and here. Conclusion Navigating the intricate landscape of venture capital financing, particularly when it comes to the nuanced world of preferred shares and priced rounds, requires a strategic blend of legal insight, market understanding, and negotiation acumen. For Canadian technology startups poised at the brink of significant growth phases, comprehending the mechanics of these financial instruments is not just beneficial—it's imperative for forging successful paths forward. By equipping yourself with this knowledge and partnering with seasoned legal advisors like Andrew Roy Legal, you're setting the stage for informed decision-making that aligns with your startup's vision and financial realities. As the Canadian tech ecosystem continues to evolve, staying informed and agile will be key to navigating the venture capital landscape, maximizing growth opportunities, and steering your startup towards a prosperous future. Reach out today for a free consultation and see how we can help you. This article is intended for informational purposes only and should not be considered as legal advice and does not establish an attorney-client relationship. Consulting with a qualified legal professional is recommended for specific legal concerns and requirements related to your business. © 2024 Andrew Roy

Andrew Roy Legal assists tech-enabled startups throughout their journey from incorporation to IPO. Get in touch today to discover how we can support you. Welcome to Part 3 of our series, Legal Fundamentals for Canadian Technology Startups. We're here to offer a pragmatic, legal roadmap for launching your Canadian tech startup. Be sure to check out Part 1 Exploring Business Structures for Canadian Tech Startups: Sole Proprietorship and Partnership and Part 2 Exploring Business Structures for Canadian Tech Startups: The Corporation. Introduction In the dynamic realm of tech-enabled startups, securing financing is a pivotal driver for expansion, especially when innovative ideas surpass available capital. The initial funding phase, often termed the "seed" round, establishes the groundwork for subsequent financing rounds like "Series A," "Series B," and beyond (terminology variations notwithstanding, a "seed" round in this article denotes a startup's first formal financing stage). This discussion delves into the two prevalent legal instruments for seed stage financing: the SAFE and the Convertible Note. Additionally, it examines a crucial term within these instruments: the Valuation Cap. The Valuation Problem for Startup Financing In many industries, financing typically follows the paths of either debt or equity. Debt manifests as loans, lines of credit, or bonds and debentures, while equity is commonly represented by shares, whether common or preferred. However, in the unique landscape of seed financing for tech-enabled startups, these traditional avenues are not viable due to the challenges posed by the valuation problem. In conventional finance and accounting, valuation of companies are typically evaluated using established methods, such as assessing earning multiples, determining the fair market value of assets, or considering the value of industry competitors. However, early-stage startups, often operating in pre-revenue stages and lacking substantial assets, face challenges, especially in markets without established industry benchmarks. This makes traditional valuation methods impractical, creating difficulty in "pricing" the company to a level where it can attract traditional debt and equity financing. To tackle this valuation problem, the startup industry has chosen a deferred approach. Valuation is postponed until the startup reaches a stage where it has developed adequate revenue, assets, or competition to establish a meaningful valuation. This deferral is facilitated by relying on two key financing instruments for seed financing: the convertible note and the SAFE. The Convertible Note A convertible note functions as a hybrid legal instrument, blending characteristics of both debt and equity. It embodies debt traits with a maturity date, interest accrual, and a principal amount, and yet, it transitions into equity by converting into company shares at a future date. This conversion is typically linked to a liquidity event such as a priced equity financing round, the sale of the company, or an initial private offering (IPO). The convertible note, in effect, defers a formal evaluation until a later time while allowing for investment in the corporation. Convertible notes allow the investor the ability to “lock in” a conversion formula for their investment that will yield a better conversion price for the investment than if those same investors invested their money in the “priced” rounds (more on that idea below). For founders, a convertible note facilitates faster, cheaper, and more flexible access to financing compared to raising funds during a priced round, which normally require issuing preferred shares. It also ensures that investors do not become shareholders until the instrument converts to shares, reducing administrative and legal burdens for the company until later stages. Terms of convertible notes vary significantly based on the company, investor, and legal counsel involved. Sophisticated investors often have their own standard or precedent convertible notes, which include terms related to interest, conversion to equity, security grants, representations and warranties, permissible amendments, and additional investor rights. SAFEs The second prevalent legal instrument in seed financing is the Simple Agreements for Future Equity (SAFE), introduced by Y Combinator and widely adopted in the United States and Canada for seed-stage financing. Designed with startup friendliness in mind, SAFEs differ from convertible notes by functioning neither as debt nor equity. Instead, they operate as promises for future equity, contingent on terms outlined in the SAFE. Investors inject capital into the startup, receiving a commitment of future equity upon the occurrence of a future equity financing (i.e. a Series A round) or another liquidity event, such as the sale of the company. Similar to convertible notes, the valuation of the company isn't mandatory at the time of SAFE issuance. SAFEs boast several advantages. Their standardization reduces legal fees and negotiation costs for both investors and startups. They require less documentation and can be closed individually rather than simultaneously with multiple investors. Moreover, as non-debt instruments, SAFEs lack maturity dates or interest rates, allowing startups to grow without the pressure of repaying debts by specific deadlines. Valuation Caps and Discount Rates As we delve into the intricacies of seed financing, one may question why investors would willingly embrace the risk associated with early-stage startups, where an estimated 75% of financing may not yield positive returns. The answer lies in the intentional design of mechanisms like valuation caps and discount rates, offering tangible benefits for early investors despite the inherent risk. Valuation Cap The valuation cap is the most important term in the SAFE and the Convertible Note. Valuation caps could also be the most complicated term of seed financing. A valuation cap sets the “maximum valuation – for the purposes of determining the price per share – at which an investor’s money converts into equity, even if investors in the priced round agree to and pay a different price per share based on a higher valuation.” The impact of a valuation cap can be intricate, influenced by factors such as whether the convertible note or SAFE is based on a pre-money or post-money basis, the number of investment rounds for these instruments, and the presence of an option pool or issued options under a stock option plan. An example will help illustrate how the valuation cap functions. Imagine that X Ventures invests $200, 000 into Startup Y, and they agree to a valuation cap of $2M with a SAFE. At the Series A round of financing, Startup Y raises an additional $1 million from VC Z. The only outstanding equity going into the Series A round are 900,000 common shares belonging to the founders of Startup Y. To simplify our discussion, let's focus on the impact of the valuation cap immediately after the SAFE converts and before the Series A round by VC Z. This will provide a clearer understanding of the effects of the valuation during this specific timeframe. Imagine the pre-money valuation ends up being $4M at the priced Series A round and no valuation cap existed for X Ventures. In this example, X Ventures investment of $200, 000 would result in 5% of equity ($200,000/$4,000,000) or 47,368 shares ((900,000 / 95%) – 900 000). However, let us bring the valuation cap into consideration. With a valuation cap of $2M, X Ventures will now receive 10% equity ($200,000 investment /$2,000,000) or 100,000 shares ((900,000 / 90%– 900 000)). The valuation cap provides the investor with a premium of around 50, 000 shares! If that difference isn't shocking enough, let's now assume that the pre-money valuation was actually $20M at the priced Series A round. With the valuation cap, X Ventures still receives 10% equity or 100,000 shares. However, without the valuation cap, X Ventures would only receive 1% of the equity or 9,090 shares. The valuation cap provides X Ventures with 9% or nearly 100 000 more shares in Startup Y! Discount Rate A discount rate is another option that investors used to mitigate the risk of investing early into a startup. A discount rate is less complicated than a valuation cap. A discount rate is applied against the share price provided to equity investors in the financing in which the SAFE or Convertible Security converts (often times Series A). A simple example will demonstrate the application of the discount rate. Suppose X Ventures invests $10,000 into a SAFE with a discount rate of 80% for Startup Y. Now assume that VC Z invests $10, 000 in a Startup during the Series A round where the shares are offered at $10/share. VC Z will receive 100 shares in the company ($10,000/ $10). X Ventures will receive 1, 250 shares ($10,000/0.8&$10). X Ventures receives 250 additional shares or 25% more equity than VC Z. Considering the advantages the valuation cap offers to the investor, it is advisable for the founder to explore negotiating a discount rate. Alternatively, maintaining the valuation cap at the highest possible level is also a strategic option. Conclusion Seed financing for tech-enabled startups is an important milestone, and the SAFE and convertible note represent the most common legal instruments used to raise capital at this stage. These instruments provide founders with a nuanced approach to securing capital, balancing the need for speed, cost-effectiveness, and flexibility. However, due to the effect of the valuation cap, founders must be very careful not to dilute their ownership stake when negotiation and agreeing to financing. Andrew Roy Legal helps tech-enabled startups with every stage of their journey from incorporation to IPO. Contact us today to learn more about how we can assist you. This article is intended for informational purposes only and should not be considered as legal advice and does not establish an attorney-client relationship. Consulting with a qualified legal professional is recommended for specific legal concerns and requirements related to your business. © 2023 Andrew Roy

Andrew Roy Legal assists tech-enabled startups throughout their journey from incorporation to IPO. Get in touch today to discover how we can support you. Welcome to Part 2 of our series, Legal Fundamentals for Canadian Technology Startups. We're here to offer a pragmatic, legal roadmap for launching your Canadian tech startup. Be sure to check out Part 1 Exploring Business Structures for Canadian Tech Startups: Sole Proprietorship and Partnership if you haven't already. What is a corporation? In Canada, the term "LLC" (Limited Liability Company), commonly used in the United States, does not apply. Instead, the typical equivalent in Canada is a corporation. Many Canadian tech startups begin as sole proprietorships or partnerships before evolving into corporations. A corporation is a separate legal entity, distinct from its owners and managers. It can hold property, operate businesses, and incur contractual and legal obligations, possessing all the rights, powers, and privileges of a natural person. Owners and managers of a corporation are shielded from its debts and other obligations thanks to its limited liability. Moreover, a corporation enjoys perpetual existence, meaning it continues indefinitely until dissolution either by its owners or by court order. Ownership of a corporation rests with its shareholders, which may include individuals, other corporations, partnerships, or trusts. Shares can be transferred between parties, subject to certain restrictions in specific circumstances. A corporation operates through its board of directors and officers. The directors, elected by shareholders, oversee the business and affairs of the corporation, appointing officers and delegating day-to-day management duties. Where should you incorporate your Canadian Tech Startup? In Canada, a corporation can be incorporated provincially or federally. Each province has its own legislation governing corporations, though these laws are more similar than not. The choice of where to incorporate depends on the jurisdiction where your corporation operates. In Alberta, for instance, one can opt for incorporation under the provincial Business Corporation’s Act RSA 2000, c B-9 (the "ABCA") or the federally regulated Canada Business Corporations Act (R.S.C., 1985, c. C-44) (the "CBCA"). Incorporation under the CBCA allows a corporation to establish its head office in any Canadian province and benefits from the perception that a federally regulated corporation enjoys greater international prestige. Moreover, the CBCA offers nationwide protection for the corporation's name. Incorporating under Alberta's ABCA brings its own benefits. For example, the Alberta Corporate Tax Act RSA 2000, c A-15 offers the country's lowest corporate tax rates to businesses incorporated in Alberta, allowing for more substantial tax benefits (to be detailed in a forthcoming article). Alberta also boasts a favorable corporate environment, with the ABCA not imposing residency requirements on corporate directors like the CBCA does. Furthermore, the ABCA doesn't necessitate that corporations maintain a register disclosing information about individuals with significant control or ownership, unlike the CBCA. For early-stage Canadian tech startups, incorporation under the ABCA is often more advantageous due to fewer regulations, reduced costs, and favorable tax treatment. Moreover, the ABCA is particularly beneficial for startups whose owners aren't Canadian residents. For these reasons, this article will focus on the incorporation process under the ABCA. How do you incorporate your Canadian Tech Startup? Incorporation in Alberta is achieved under the ABCA. Bear in mind that a corporation's existence is dependent on the governing statute. Section 5 of the ABCA states that one or more persons may incorporate a corporation by signing articles of incorporation and complying with Section 7. Section 7 requires that an incorporator send to the Registrar the articles of incorporation and documents required in Sections 12(3), 20 and 106. Section 20 requires that a corporation have a registered office within Alberta and Section 106 requires the corporation send a notice of the directors. The Articles of incorporation are like a “birth certificate” for the corporation and contain valuable information about the corporation. Section 6(1) state that the articles of incorporation shall include the name of the corporation, the classes and maximum number of shares that the corporation is authorized to issue, whether there is a restriction to transfer shares of the corporation, the number of directors, including the minimum and maximum number of directors, and any restrictions on the businesses the corporation may carry on. Name The corporation's name must comply with Section 10 of the ABCA. One of the following terms should be included as part of the name: "Limited", "Limitée", "Incorporated", "Incorporée" or "Corporation", or the abbreviation "Ltd.", "Ltée", "Inc." or "Corp." placed at the end of the name. The corporation use that of another corporation, trust, association, partnership, sole proprietorship or individual in existence. A NUANS ("newly upgraded automated name search") report is required within 90 days before submitting the articles of incorporation to ensure no similar names exist. Remember, a corporate name differs from a trademark. Registering the name as a corporation under the ABCA doesn't offer the same protections as a registered trademark under the Trademarks Act. See our series on trademarks on the process for registering a trademark. Registered Office The corporation's registered office address, where it can receive legal documents and maintain corporate records, must be included in the articles. Per Section 20(1), a post office box cannot serve as the registered office address. Share Capital As stipulated by Section 26(1), every corporation is mandated to have at least one class of shares. The articles define the number and class of shares a corporation is authorized to issue. Three rights are typically embedded in one or more classes of shares: the right to vote at shareholder meetings, the right to receive dividends as declared by the board of directors, and the right to partake in the residual value of the corporation’s assets upon its liquidation. If a corporation has more than one class of shares, the typical share classes include: Common shares: This class includes the three rights previously discussed. Non-voting common shares: These shares hold the same rights, privileges, restrictions, and conditions as common shares, excluding the right to vote. Preferred or special shares: These shares have a fixed liquidation preference and must be paid before any common shares. They may also include other rights attached to common shares. Frequently, incorporators introduce a class of "blank cheque" preferred shares. These are authorized but unissued preferred shares that can be issued in series. The rights, privileges, restrictions, and conditions of these shares can be determined by a corporation's board of directors per Section 29 of the ABCA. "Blank cheque" preferred shares can be used to raise additional funds or as an anti-takeover defense by enabling the board to create a new series of preferred shares with specific voting, conversion, or control rights. The exact share structure depends on various factors like financing needs and strategies, control of the corporation, investor expectations, exit strategy, tax issues, and possible employee incentive programs. A qualified lawyer's advice on structuring your share capital is crucial to your business success. Restrictions on Share Transfers The articles also outline any restrictions on the issue, transfer, or ownership of shares. Transfer restrictions are essential for various reasons, including controlling the business ownership and leveraging commonly used prospectus exemptions. More on share issuances and transfers will be covered in a subsequent article. Directors The articles must state the full legal name and address of the first director(s) and specify whether there is a fixed number of directors or a range (minimum and maximum number). If a range is chosen, the actual number of directors at any given time must fall within that range. Every corporation must have at least one director. Restrictions on the Business of the Corporation Restrictions on a corporation's business are common in professional corporations for doctors or lawyers but are not frequent in Canadian legal tech startups. Filing the Articles of Incorporation Filing an incorporation can be done through a registry agent or authorized service provider and must include: Articles of Incorporation Notice of English/French Name Equivalency (optional) Notice of Address Notice of Directors Notice of Agent for Service for an Alberta or Extra-Provincial Corporation NUANS report Valid ID Fee payment Once the Director under the ABCA issues a certificate of incorporation, the corporation is officially incorporated as of the date indicated on the certificate. Directors and Officers Directors manage the overall business and affairs of the corporation, and the board appoints officers to handle day-to-day matters. A private corporation must have at least one director. According to Section 105(1) of the ABCA, a director must be at least 18 years of age, must not be bankrupt, must be an individual, and must be of sound mind pursuant to various legislations. Unlike the CBCA, the ABCA does not require director(s) to be Alberta residents. Individuals can become a director of a corporation through the articles of incorporation, election by shareholders, or appointment by the board of directors to fill a vacancy. A director may resign, become disqualified, or be removed from office by the shareholders. Officers manage the daily operations of a corporation and can be appointed by the directors. Directors and officers may be subject to personal liability due to their roles within the corporation. According to Section 122(1) of the ABCA, directors and officers have a duty to act honestly and in good faith, with the corporation's best interests in mind, and must exercise care, diligence, and skill. In addition, different Canadian statutes impose personal liability for: Unpaid employee wages and vacation pay Failure to remit employee income tax, employment insurance, and Canada pension plan source deductions Failure to collect sales tax Offenses under environmental protection legislation Payment of dividends if the corporation is insolvent Misrepresentation in certain public company disclosure documents After Incorporation of your Canadian Tech Startup Once the articles of incorporation are filed and a certificate issued, the corporation must be organized, and directors must prepare certain corporate records. Bylaws are regulations made by the directors governing the corporation's internal affairs, addressing matters not included in the articles or corporate statute. Bylaws generally outline the identification process for contract signatories, the protocol for calling directors’ meetings, the quorum for these meetings, and the rules for shareholder meetings, among other things. These bylaws, once adopted by directors, must be confirmed at the next shareholders' meeting to remain in effect. Directors can modify the bylaws subject to shareholder ratification. Pursuant to 105(5) of the ABCA, a person is a director when elected or appointed at a meeting and does not refuse to act as a director, or when not present at the meeting, consents to act as a director before the meeting or within ten days after the meeting. Most corporations keep certain corporate records in a minute book,. The minute book can be understood as the “photo album” or the "family history" of the corporation and includes the articles of incorporation and any amendments bylaws shareholder agreements minutes of directors and shareholder meetings resolutions of directors and officers registers of directors, officers, securities, and transfers of securities share ledgers, and debt obligations. Tax Perspective Corporate tax is a distinct discipline, and this article can only provide a brief overview of the topic. Because the corporation is a separate legal entity, it pays its tax separately from shareholders. A shareholder cannot include the corporation’s income or loss in their personal income. When the corporation's income is distributed to shareholders, it must be in the form of a dividend from the corporation's after-tax income. Dividends to individual shareholders constitute taxable income, even though the corporation has already paid tax on them. Integration mechanisms (such as the gross-up and dividend tax credit or refundable corporate taxes) help eliminate or reduce the element of double-taxation that would result from the imposition of tax at both the corporate and shareholder levels. When a shareholder sells their shares, it's generally taxed as a capital gain. Under certain conditions, this gain may be tax-exempt up to a limit. Alberta’s corporate tax rates, the lowest in Canada, stand at 8%, plus the federal rate of 15%, equating to a combined rate of 23%. There are further tax deductions available to Canadian Controlled Private Corporations (the “CCPC”) on the first $500,000 of active business income and additional tax advantages like the Scientific Research and Experimental Development Program (the "SR&ED") (a future article will consider the CCPC and SR&ED in depth). Corporations also have the advantage of compensating employees and independent contractors with equity, an important tool for Canadian tech startups to attract, incentivize, and retain key personnel. There are many forms of equity-based compensation available to corporations, including stock options, restricted share units, deferred share units, and stock issuances. Future articles will explore the tax consequences arising from these types of equity-based compensation. Conclusion Navigating the world of incorporation in Alberta may appear complex, but it can offer many benefits for Canadian tech startups, especially given Alberta's favourable corporate tax rates and flexible regulatory environment. It's essential to understand the responsibilities that come with incorporating, such as establishing a registered office, formulating a share structure, adhering to the stipulations concerning directors and officers, and maintaining comprehensive corporate records. Also crucial is an understanding of the tax implications for both the corporation and shareholders. While this article has aimed to provide a broad overview, it is always wise to engage a legal professional when incorporating a business to ensure all legal and financial aspects are properly addressed, thus laying a solid foundation for the future success of your tech startup. Stay tuned for more in-depth articles on corporate tax deductions, equity-based compensation, and other relevant topics for your Canadian tech startups. At Andrew Roy Legal, we provide a range of advice relating to corporate and commercial law. We offer flat fees to provide you and your business with certainty. Contact us today to learn more about how we can assist you. This article is intended for informational purposes only and should not be considered as legal advice and does not establish an attorney-client relationship. Consulting with a qualified legal professional is recommended for specific legal concerns and requirements related to your business. © 2023 Andrew Roy

Andrew Roy Legal assists tech-enabled startups throughout their journey from incorporation to IPO. Get in touch today to discover how we can support you. Introduction In 2022, the House of Commons Committee in Canada embarked on a groundbreaking study to explore the vast potential of blockchain technology across various sectors, including on Canadian crypto law. The study aimed to assess the current status of blockchain, crypto adoption, and crypto law in the country, engaging in extensive consultations, gathering insights from 31 expert witnesses, and analyzing six briefs. The findings shed light on the manifold benefits and challenges associated with blockchain technology and crypto law, with particular emphasis on the need for robust regulatory frameworks. In this comprehensive analysis, we delve into the implications of the study's revelations, with a focus on the legal aspects surrounding cryptocurrencies and blockchain technology in Canada. Blockchain Technology and Its Evolution Originating from Satoshi Nakamoto's seminal 2008 paper, blockchain technology emerged as a distributed ledger system. It operates on a network where every node possesses a copy of the ledger and validates information through consensus mechanisms. The addition of encrypted data blocks ensures data integrity and eliminates retroactive alterations, all without the need for a central authority. Blockchain networks can be open/permissionless (e.g., Bitcoin, Ethereum) or private/permissioned, with restricted access to certain nodes. Although often confused with blockchain technology, cryptocurrencies represent digital currencies that utilize blockchain as their underlying infrastructure. Cryptocurrencies and Their Applications Blockchain technology and cryptocurrencies are intrinsically linked, as blockchain serves as a digital ledger enabling secure electronic transfers and storage of value. Modeled after Bitcoin's blockchain, most cryptocurrencies facilitate transactions and validate the ledger using cryptographic keys to ensure secure ownership verification. While Bitcoin uses a proof-of-work consensus mechanism, where nodes compete to validate transactions through computational problems, Ethereum has transitioned to a proof-of-stake model. Together, blockchain and cryptocurrencies form the core of Web 3, the third phase of the internet, empowering individuals with ownership of digital assets and online privacy. Characteristics and Challenges of Blockchain Technology Blockchain networks boast four key characteristics: transparency, traceability, immutability, and disintermediation, allowing for peer-to-peer transactions without intermediary involvement. These features provide data decentralization, enhanced security, and proven business solutions. However, blockchain technology faces several challenges, including concerns over energy consumption, limited scalability, high transaction fees, lack of standardized regulations, and the ongoing development of regulatory frameworks. Diverse Applications of Blockchain Technology Blockchain's applications can be broadly categorized into two groups: those related to cryptocurrencies and those in various sectors beyond finance. Expert witnesses cautioned against assuming that the most valuable applications of blockchain technology are already known, likening the early days of blockchain to the nascent stages of the internet. Cryptocurrencies, created using blockchain technology, include cryptocurrencies themselves, cyber-indexed tokens (e.g., NFTs), and utility tokens serving specific purposes. Beyond cryptocurrencies, blockchain technology finds application in diverse non-cryptocurrency fields, such as efficient and transparent supply chains, pharmaceutical provenance, food security, tracking CO2 emissions, and improving carbon credit systems. Blockchain also enables automated revenue distribution in cultural industries and enhances fraud detection in music royalty distribution. The advent of non-fungible tokens (NFTs) has created entirely new digital-native industries centered around unique asset ownership. Financial Applications and Canada's Role in the Blockchain Industry The financial sector significantly benefits from blockchain technology, with cryptocurrencies serving as viable investment opportunities and "smart contracts" driving the growth of decentralized finance (DeFi). Blockchain enables fractionalized ownership of assets like real estate, fosters financial inclusion for underserved populations, and facilitates quicker cross-border transactions with reduced settlement times. Canada stands as an innovative leader in the blockchain industry, with substantial contributions to projects like Ethereum. However, expert witnesses warned of potential talent and entrepreneurship loss due to the lack of regulatory clarity and support, which might impede the country's progress in this rapidly evolving field. Economic Impact and Regulatory Landscape of Crypto Law in Canada Blockchain's economic impact in Canada is evident, with billions invested in the sector. While the number of businesses adopting blockchain technology remains relatively low, it is steadily increasing, providing employment to around 16,000 individuals and offering competitive salaries. Despite its potential, the industry faces regulatory challenges at both federal and provincial levels. Regulators focus on cryptocurrency trading platforms and related financial services to safeguard consumers and combat money laundering concerns. The taxation of cryptocurrencies involves considering them as commodities, resulting in capital gains or losses. Provincial securities regulators view many crypto assets as securities subject to securities legislation. The regulatory sandbox program offers temporary relief to firms to comply with regulations. Canada's Approach to Regulating Cryptocurrency Trading Platforms Canada hosts approximately 11 Canadian-based cryptocurrency trading platforms catering to Canadians and at least 15 foreign platforms serving the country. In the aftermath of the collapse of QuadrigaCX in 2019, Canadian regulators adopted a more robust approach to regulating these platforms to protect consumers. Witness testimonies highlighted the stringent regulatory requirements that platforms must adhere to, including the implementation of cold storage for client assets. Some platforms are registered with Canadian securities regulators and the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), with robust anti-money laundering and compliance programs. Cryptocurrency custodians play a crucial role in risk mitigation and securing assets for institutions and investors. Canada's Competitive Advantage in Cryptocurrency Mining Canada boasts a competitive advantage in cryptocurrency mining, driven by factors such as the rule of law, infrastructure, a well-educated workforce, natural cooling systems, and access to clean, renewable energy. Mining operations provide significant value to the Canadian economy and contribute to smaller population centers. However, concerns arise over high energy consumption, comparable to that of entire countries, leading some utilities to restrict new connections. Witnesses highlighted the need for innovations in renewable energy sources and alternative consensus mechanisms to mitigate environmental impacts and support the power grid. Overcoming Challenges and Embracing Opportunities While the blockchain industry has witnessed remarkable growth and potential, it has also faced significant challenges, with high-profile fraud cases like FTX. Expert witnesses emphasized the importance of differentiating technology from bad actors and the need for effective regulations to protect consumers from potential risks associated with cryptocurrencies. Nonetheless, the majority of experts remain optimistic about the transformative potential of blockchain technology. Promoting Regulatory Clarity and Government Support of Crypto Law To foster the growth of the blockchain industry in Canada, regulatory clarity is paramount. A lack of standardized regulations and jurisdictional oversight has led some firms to relocate to other countries, affecting talent retention and consumer protection. Expert witnesses recommended the development of a digital asset taxonomy and differentiated regulations, with the European Union's (EU) comprehensive MiCA regulations cited as a potential model. To address the lack of regulatory clarity, witnesses called for increased government engagement with the blockchain industry and the establishment of a national strategy. Stablecoins received particular attention, with recommendations for a comprehensive regulatory regime. Witnesses also highlighted the potential of Central Bank Digital Currencies (CBDCs) and their benefits in blockchain-based transactions. Furthermore, witnesses emphasized the importance of government support in research, commercialization, and education within the blockchain industry. They proposed targeted investments to bolster research and commercialization efforts, drawing parallels with the government's successful support of artificial intelligence research. Education was identified as a critical aspect to enhance public understanding of blockchain technology and protect consumers from fraud. Blockchain education, beginning at the elementary school level, was considered essential to nurture talent and create a competitive workforce within the global industry. List of Recommendations In response to the information gathered by the Government of Canada, they released the following sixteen recommendations: That the Government of Canada recognize blockchain as an emerging industry in Canada, with significant long-term economic and job creation opportunities. That the government of Canada should, in its efforts to improve consumer protection and regulatory clarity to the emerging and innovative field of digital assets, be guided by the principle that individuals’ right to self custody should be protected and that ease of access to safe and reliable on and off ramps should be defended and promoted. That the Government of Canada, following consultation with the provinces and stakeholders, establish a national blockchain strategy that clarifies the government’s policy direction and regulatory approach, and demonstrates support for the industry. That the Government of Canada, with a view to adopting a national blockchain and distributed ledger strategy call on a group of experts, entrepreneurs, academics and investors, as well as people in the artificial intelligence industry cluster, to support its analysis and understanding and help it determine best steps; and give the group a mandate to set up a platform for information exchange and monitoring; carry out analyses to identify the most promising or high-risk areas for disruption; advise the government on promising initiatives; and support the government in implementing selected initiatives. That the Government of Canada pursue opportunities for international cooperation in the development of blockchain regulations and policies, including with our major trading partners. That the Government of Canada conduct innovative pilot projects using distributed ledgers to help strengthen the ecosystem and recognize up-and-coming businesses. That the Government of Canada create a sandbox where entrepreneurs can test technologies unhindered by as yet unadopted regulations. That the Government of Canada adopt a distinct regulatory approach to stablecoins that reflects the difference between these products and other cryptocurrencies, and account for the unique regulatory challenges they present. That the Government of Canada adopt regulatory changes to promote the establishment of federally regulated cryptocurrency custodians to meet the demand for cold storage services from Canadian cryptocurrency firms. That the Government of Canada adopt measures for access to banking and insurance services for blockchain firms, including through Crown corporations. That the Government of Canada establish a public awareness campaign, in consultation with the provinces and the industry, to educate the public about risks related to cryptocurrencies and the benefits of accessing cryptocurrency markets through regulated Canadian entities. That the Government of Canada draw on the previous report on SMEs and launch a strategic initiative to develop skills and talent and support research. That the Government of Canada investigate ways to promote the adoption of blockchain technology in supply chains. That the Government of Canada, in collaboration with the Commissioner of Canada Elections, undertake a study on the new opportunities this technology presents for electronic voting, consultation, and the modernization of our democratic institutions. That the government of Canada should investigate equity between provinces in the application of the Excise Tax Act to mining activities to ensure fair taxation. That the government of Canada, in order to foster a competitive digital asset mining environment and in order to continue to attract investments, should maintain that digital asset mining constitutes a commercial activity in Canada; and as such adopt a neutral and equitable position towards this new and growing industry. Conclusion The findings from the House of Commons Committee's study demonstrate that blockchain technology and cryptocurrencies possess immense potential to revolutionize various sectors and boost economic growth in Canada. Despite facing challenges such as regulatory clarity, high energy consumption, and concerns over criminal activity, the blockchain industry in Canada continues to thrive. With recommendations for regulatory clarity, government support, and strategic initiatives, the country can become a global leader in this transformative technology, unleashing countless opportunities for innovation and prosperity in the years to come.

We provide advice on all things related to blockchain and cryptocurrencies. We offer flat fees to provide you and your business with certainty. Contact us today to learn more about how we can assist you. This article is intended for informational purposes only and should not be considered as legal advice and does not establish an attorney-client relationship. Consulting with a qualified legal professional is recommended for specific legal concerns and requirements related to your business. © 2023 Andrew Roy

This is Part 1 of our series on Legal Fundamentals for Technology Startups, where we provide practical resources for common legal questions for technology startups. Sign up to have the articles delivered directly to your email: When embarking on a new startup, one of the primary considerations is the type of business structure to adopt. This decision holds significant implications, including taxation, liability, and the ability to raise capital. In this article, we will explore the options of sole proprietorship, partnerships, and joint ventures. Sole Proprietorship for Canadian Tech Startups For many entrepreneurs of Canadian tech startups, especially those seeking simplicity and low setup costs, a sole proprietorship may be an attractive option. Often times, startups will begin with a sole proprietorship and when the business begins to generate positive cash flow, transition to a more complicated business structure. A sole proprietorship allows the owner, known as the sole proprietor, to retain complete control over the business and, in this structure, all income, assets, and obligations of the business belong to the sole proprietor. A sole proprietorship can only have one owner but can employ staff, and the sole proprietor owns all business assets and maintains full control over business operations and decision-making. Unless the business operates under a different name, there are no registration or constitutional document requirements. As many Canadian tech startups will take a few years to become profitable and are often created as a "side gig," this structure allows the sole proprietor to keep costs low while offsetting business losses against other income. However, because this business structure does not have a distinct legal identity and cannot own assets or grant security in its name, the sole proprietor has unlimited financial liability and is personally responsible for all financial obligations, including potential risks to personal assets. As a result, it is often recommended that the owner transition from this structure as it grows in order to limit the personal liability of the owner. Partnerships for Canadian Tech Startups Partnerships are another vehicle available to structure a business for Canadian tech startups. The two most common partnership structures for startups are general partnerships and limited partnerships. General Partnership A general partnership allows two or more individuals (or corporations) to work together and share profits. Unlike other business structures like a corporation or limited partnership, general partnerships do not require formal documents or complex registration procedures. A general partnership can be created with a simple verbal agreement, although it is recommended to have a written agreement. A general partnership would make it easier for multiple entrepreneurs to pool their resources and raise capital for the business. This option for Canadian tech startups is often used when two friends or business partners start up a business together, but do not yet have the capital or cash flow to create a more complicated business structure. To establish a general partnership, all that is needed is a registered trade name, a tax number for tax payments, and a bank account. Profits and losses in a general partnership are passed through to the individual partners, who report them on their personal tax returns. Additionally, dissolving a general partnership is as straightforward as establishing one, with no additional legal obligations beyond reporting the business closure on tax returns. On the other hand, all partners have unlimited joint liability, and general partnerships face challenges in attracting external investments due to limited credibility and potential risks associated with unlimited liability. One partner's decisions on behalf of the business are binding for all partners, potentially leading to shared responsibility for contracts, assets, and debts incurred by the partnership. Personal assets of individual partners may be seized to cover damages or unpaid business debts. It is crucial to choose business partners wisely and establish a partnership agreement to clarify management accountability, ownership, and profit distribution. General partnerships are generally unsuitable for passive investors and are not used to raise equity. As a result, it is generally recommended that once a Canadian tech startup wishes to raise capital, it does not use a general partnership. Limited Partnership A limited partnership can be formed to carry on any business that a general partnership may carry on. The main feature of a limited partnership is that the liability of each limited partner is limited to the amount of capital such limited partner contributed to the partnership. This option could be used for a Canadian tech startup if a general partnership attracts a silent investor, and the owners do not want to deal with the formalities of a corporation. Limited partnerships raise capital through the issuance of equity (partnership interests) and the incurrence of debt. Partnership interests are typically issued in private placements. Limited partners are prohibited from managing the partnership, making it a suitable vehicle for raising capital with silent investors. However, in order to protect the liability of the general partners, corporations are commonly used as general partners of a limited partnership. Forming a limited partnership under the Alberta Partnership Act (APA) is advantageous in specific circumstances. It is preferred when most partners reside in Alberta, the firm has Alberta counsel, and the business operations are limited to Alberta. If a partnership is formed in another province or territory and conducts business in Alberta, it must register as an extra-provincial limited partnership. To form and organize a limited partnership in Alberta, a limited partnership agreement must be drafted, which is a private document outlining the rights and obligations of the partners and overriding default provisions of the APA. A limited partnership must have at least two partners, including one general partner and one limited partner. A person can be both a general partner and a limited partner simultaneously, as long as there is at least one other general partner or limited partner (that is, the requirement for at least two partners at all times is met). A certificate establishing the limited partnership must be recorded with the Registrar of Corporations. It includes the firm name, names, email addresses, and addresses of each general partner, and other required information. General partners have broad authority to contract on behalf of the firm, and the firm is generally bound by contracts made by the general partners acting within their authority. However, there are limitations on a general partner's authority as specified in the APA. These limitations include acts contrary to the agreement between partners, actions hindering the firm's ordinary business, and other restrictions set out in the agreement. There are no registration renewal or annual filing requirements for limited partnerships under the APA. However, if there are changes in the information stated in the certificate, the partnership must deliver a notice to amend the certificate to the Registrar. A limited partner still has certain liabilities that he or she needs to be aware of. Limited partners may become liable for the firm's debts and obligations if the limited partner fails to make their full capital contribution as stated in the limited partnership agreement. he or she becomes liable to the firm to the extent of the agreed capital contribution. Additionally, if a limited partner receives a return of their capital contribution but the firm has unpaid creditors, the limited partner is liable to the extent of the amount returned, including interest, necessary to satisfy the firm's liability to the creditors. If a limited partner's surname appears in the firm's name, they are liable as a general partner to any creditor who extended credit to the firm without actual knowledge that the limited partner is not a general partner. If a limited partner participates in controlling the firm's business, they become liable for its debts and obligations. Additional Structures: Unlimited Liability Company, Limited Liability Partnership, and Joint Venture The unlimited liability company, the limited liability partnership, and joint ventures are additional structures for businesses, but these structures are much less common for Canadian tech startups. Therefore, we will only provide a short overview of each. Unlimited Liability Company An unlimited liability company is a unique form of business entity in Canada, which can only be incorporated under the provincial laws of Alberta, British Columbia, and Nova Scotia. In an unlimited liability company, shareholders are personally liable for the liabilities of the company. They are generally used by foreign investors to gain advantageous tax treatments in their home jurisdiction. This occurs because, while a unlimited liability company is taxed as a corporation in Canada, they may be eligible for a "check-the-box" election in the United States, permitting them to be taxed as a flow-through entity. Limited Liability Partnership: A limited liability partnership may be formed under Alberta law only for the purpose of practicing one or more eligible professions governed by an Act of the Alberta Legislature (section 82(1) of the Partnership Act). An eligible profession is a profession or discipline regulated by an Act of the Alberta Legislature that specifically authorizes members of the profession or discipline to carry on business through a corporation that has the words "Professional Corporation" or the abbreviation "P.C." as part of its name (section 81, Partnership Act). Joint Venture Two or more parties may engage in a joint venture where they collaborate on a business venture. There is no specific statutory definition or regulatory scheme for joint ventures in Canada, at either the provincial or federal level. Private equity investors often enter joint ventures with managers or operators, and they are common in the healthcare and infrastructure industries. Cross-border joint ventures are also common because often US private equity firms will invest in Canadian companies, and the Canadian management teams or operators will maintain a stake in the businesses. Joint ventures can be contractual (two or more entities agreeing to combine resources or expertise to carry out a specific project or venture) or corporate (a corporate joint venture arises where two or more entities decide to use a corporation as the joint venture vehicle and become shareholders of the corporation). Conclusion The sole proprietorship, the general partnership, and the limited partnerships are common business structures for Canadian tech startups. The central disadvantage of the sole proprietorship and the general partnership is the difficulty in raising capital due to the unlimited liability of the owners or partners. These structures are generally advised when the business is first starting and the entrepreneurs can offset their losses against other income. A limited liability partnership can be a way for passive investment and raising funds without having to comply with the more formal requirements of a corporation. However, normally once a startup starts turning a profit and has sufficient cash flow, they create a corporate structure to limit their personal liability. In the next post of this series, we will discuss the corporate body. We help Canadian tech startups structure their business. We offer flat fees to provide you and your business with certainty at this early stage of the process. Contact us today to learn more about how we can assist you. This article is intended for informational purposes only and should not be considered as legal advice and does not establish an attorney-client relationship. Consulting with a qualified legal professional is recommended for specific legal concerns and requirements related to your business. © 2023 Andrew Roy

Breaking Barriers: Court of King's Bench Pioneers the Tort of Harassment in Alberta's Landmark Ruling Introduction Justice Colin Feasby (Feasby J.) of the Court of King’s Bench of Alberta made a significant legal development by establishing a new tort of harassment in the province of Alberta. This groundbreaking decision was reached in the case of Alberta Health Services v Johnston, 2023 ABKB 209, which emerged from the highly publicized harassment inflicted by former mayoral candidate Kevin Johnston upon Alberta Health Services (AHS) employees during the peak of the COVID-19 pandemic. Justice Feasby's ruling introduces a tort of harassment, marking a crucial milestone in Canadian law. An Emerging Tort of Harassment Feasby J. first considers the discussion and controversy of an emerging tort of harassment in Ontario and BC. The Ontario Court of Appeal in the case of Merrifield v. Canada (Attorney General), 2019 ONCA 205 (Merrifield) concluded that there is no existing tort of harassment in Ontario and that the development of such a tort would require compelling reasons. Similarly, the BC Courts have not recognized the tort of harassment in BC. However, despite the hesitation expressed in Merrifield, several decisions from the Ontario Superior Court and other jurisdictions have recognized a narrower tort of internet harassment. This recognition of this narrower tort raises questions about the inconsistency of recognizing a tort solely based on the medium used, while denying a tort for the larger context. Feasby J. then considers Justice Graesser (Graesser J.) decision in the in the case of Ford v Jivraj, 2023 ABKB 92 (Ford), who expressed disagreement with the Ontario Court of Appeal's decision in Merrifield and saw harassment as a logical extension of the existing tort of intentional infliction of mental suffering. While Feasby J. agrees with Graesser J. that Alberta courts are not bound by the Ontario Court of Appeal, he disagrees that the tort of harassment is simply an extension of intentional infliction of mental suffering. Law of Recognizing New Torts Feasby J. discusses the law and process for recognizing new torts in Canadian law. According to the Supreme Court of Canada in Nevsun Resources Ltd. v. Araya, 2020 SCC 5 (CanLII), [2020] 1 SCR 166 (Nevsun), the development of the common law occurs when it is necessary to clarify a legal principle, resolve inconsistencies, or keep the law aligned with societal evolution. The judges have the authority to extend existing principles or apply existing remedies to protect rights that are not adequately addressed. A key consideration in recognizing a new tort is whether the harm in question cannot be adequately addressed by existing recognized torts. The majority opinion in Nevsun emphasizes the need for the new tort to address a specific wrong that lacks sufficient remedies. However, the dissenting opinion takes a more restrictive view, stating that courts will not recognize a new tort when there are adequate alternative remedies, where the tort does not reflect and address a wrong visited by one person upon another, and where the change wrought upon the legal system would be indeterminate or substantial. For a proposed nominate tort to be recognized by the courts, at a minimum it must reflect a wrong, be necessary to address that wrong, and be an appropriate subject of judicial consideration. Feasby J. also highlights the historical context of the existing torts, which were developed over centuries without adequately recognizing the harms experienced by women and marginalized groups. The author acknowledges that harassment disproportionately affects these groups, and the failure to recognize a tort of harassment in the past does not mean it should not exist. Justifying Recognition of a Tort of Harassment Feasby J. then provides his reasoning for why the courts should recognize a tort of harassment: First, harassment is a criminal offense, and the fact that harassment is a crime suggests that it is reasonable to ask whether it is also something for which a civil remedy should exist. Second, he states that while the Alberta legislature has this ability to create a statutory cause of action, the development of common law provides justices with this right to create new rights of actions. Third, the Court of King’s Bench routinely provides restraining order applications for harassment. While the doctrinal basis for granting restraining orders in cases of harassment is unclear, various legal justifications have been suggested, such as protecting the freedom of the applicant from harassing conduct or addressing vexatious behavior. The power to grant restraining orders stems from the Court's inherent jurisdiction, allowing for the issuance of remedies to protect legal or equitable claims. Recognition of the tort of harassment would enable the court to award damages in addition to issuing restraining orders, offering a more comprehensive response to the problem of harassment. Fourth, he finds that existing torts fail to adequately address the harm caused by harassment. While defamation and assault touch on certain aspects of harassment, they are limited in scope, addressing false statements causing reputational harm and imminent threats of physical harm, respectively. The new privacy torts only apply when there is a reasonable expectation of privacy, which may not be present in cases of harassment. The tort of private nuisance, used in the context of repeated telephone calls, is inadequate for many harassment situations as it requires a connection to property. The tort of intimidation also has limited applicability as it necessitates submission to a threat, whereas harassment often lacks a clear threat or submission. Where Graesser J in Ford and other scholars propose viewing harassment as an extension of the tort of intentional infliction of mental suffering, Feasby J finds that this particular tort requires flagrant or outrageous conduct calculated to produce harm, resulting in a visible and provable illness. Harassers often act recklessly rather than with clear intention, and victims may resort to self-preservation behaviors that don't lead to visible or provable illness. Consequently, the harms and costs associated with harassment that fall short of a visible or provable illness cannot be recovered under the tort of intentional infliction of mental suffering. The Elements of the Tort of Harassment After canvassing the reasons for establishing a tort of harassment, Feasby J finds that the new tort of harassment requires a four-part test. The tort is made out where a defendant has: Engaged in repeated communications, threats, insults, stalking or other harassing behavior in person or through other means. That he knew or ought to have known was unwelcome. Which impugn the dignity of the plaintiff, would cause a reasonable person to fear for the plaintiff's safety or the safety of the plaintiff's loved ones, or could foreseeably cause emotional distress, and Caused harm. Remedies Feasby J. then discusses the damages or remedies for this new tort, where he draws from defamation. General damages in defamation cases are presumed without the need to prove actual injury. Factors for assessing general damages include the plaintiff's position and standing, the nature and seriousness of the defamatory statements, the mode and extent of publication, the absence of retraction or apology, and the conduct and motive of the defendant. In this case, the plaintiff, Ms. Nunn, was a public health inspector who faced attacks on her professionalism and was labeled a criminal and a terrorist. The attacks were widely disseminated through mainstream media and online platforms. The defendant, Mr. Johnston, did not apologize and maintained his position. Drawing from Hill v. Church of Scientology of Toronto, 1995 CanLII 59 (SCC), [1995] 2 SCR 1130, the court awarded: General damages of $300,000 for injury to her reputation, considering the significant public interest in the COVID-19 pandemic; $100,000 in general damages for the harassment she experienced, which caused her fear and negatively impacted her quality of life; Aggravated damages were awarded in the amount of $250,000. Permanent injunctions restraining Mr. Johnston’s activities in relation to AHS and Ms. Nunn; Costs multiplied by three. Conclusion Feasby J. establishment of the new tort of harassment in the province of Alberta marks a significant legal development and will have wide ranging impact on a variety of contexts in the civil litigation sphere. Accusations of harassment are common in employment, business, and domestic contexts, and this tort, including the significant amount of damages awarded, represents a significant risk to business and employers, while providing another right of action by those impacted by serious and continual harassing behaviour. Andrew Roy Legal offers a variety of civil litigation services. Contact us today to learn more about how we can assist you. The information in this article is not legal advice and does not establish an attorney-client relationship. © 2023 Andrew Roy

Navigating Trademark Oppositions: What You Need to Know If you enjoy this content, please consider signing up. Creating a member account is free, and you will · receive new content delivered directly to your inbox; · have exclusive access to members only content; · gain access to our online booking tool; · collect 500 bonus points in our points program. Introduction Picture this: you've registered a trademark, and you're going about your business when suddenly, a letter from a law firm arrives. It informs you that you must either abandon your trademark or prepare for an opposition hearing. Confusion and concern set in. What exactly is a trademark opposition statement? In this blog post, we'll break down the process of a trademark opposition and provide you a better understanding of what lies ahead. Statement of Opposition If someone wants to halt the registration process of an application, they must file a statement of opposition with the Registrar (the "Opposition"). Per Section 38(1) of the Trademarks Act, RSC 1985, c T-13 (the “Act”), to file an Opposition, a party has two months from the date of a trademark advertisement. The Opponent is the person that wishes to oppose the trademark (the "Opponent"), and the applicant is the one who originally submitted the application for the trademark (the "Applicant"). An Opponent can oppose the registration of a trademark regardless of whether it directly affects their businesses. They only need to allege that the mark is unregistrable. Per Section 38(3) of the Act, the Opposition should include detailed grounds for the Opposition and the Opponent's address. Section 38(2) provides the grounds on which an Opposition may be based: (a) that the application does not conform to the requirements of subsection 30(2), without taking into account if it meets the requirement in subsection 30(3); (a.1) that the application was filed in bad faith; (b) that the trademark is not registrable; (c) that the applicant is not the person entitled to registration of the trademark; (d) that the trademark is not distinctive; (e) that, at the filing date of the application in Canada, determined without taking into account subsection 34(1), the applicant was not using and did not propose to use the trademark in Canada in association with the goods or services specified in the application; or (f) that, at the filing date of the application in Canada, determined without taking into account subsection 34(1), the applicant was not entitled to use the trademark in Canada in association with those goods or services. The date for assessing the Applicant's compliance with the above-mentioned grounds depends on the particular section (i.e. the “material date”) (it is important to contact a trademark agent or lawyer to find out the material date for each particular section, as they can differ). In an Opposition, the Opponent must include the material facts that the support the opposition to the Applicant's trademark. The Opposition Board may reject an Opposition that lacks supporting facts. If an Opposition lacks sufficient detail, the Applicant can request an amended statement, but the Board only checks if one substantial issue is raised. The Board cannot consider a ground not raised by the Opponent. The Opposition Board generally only considers issues raised in the original Opposition. If the Opponent wants to raise additional issues, they must seek permission to amend the Opposition. The Registrar has discretion to grant or refuse an amendment based on legal principles and the interests of justice. The Registrar can reject an Opposition that does not raise a substantial issue or is frivolous. A substantial issue is one that could potentially lead to success for the Opponent if it is proven. The Registrar must assume the truth of the allegations in the Opposition and cannot apply a higher test of likelihood of success. Counter Statement by Applicant If the Registrar determines that the Opponent has raised at least one substantial issue in the an Opposition, they will forward it to the Applicant, who can response (it is noted that this is generally the time when the Applicant will call the lawyer). The Applicant, within one month of receiving the statement, must file a counterstatement with the Trade-marks Office and serve a copy on the Opponent. The counterstatement and any additional material must be served personally or by registered mail to the Opponent's address in Canada, with service deemed effective on the mailing date. The Applicant must notify the Registrar once service has been affected and, in his correspondence with the Registrar, the Applicant must clearly indicate (1) manner of service and (2) the date of service. If the Applicant does not file a counterstatement within the one-month time limit that is prescribed, its application for registration of a trade-mark will be deemed to have been abandoned. Evidence for Opposition Proceeding In the opposition proceeding, both the Applicant and the Opponent can submit evidence to the Registrar through affidavits or statutory declarations. The Opponent must submit evidence within one month of receiving the Applicant's counterstatement, while the Applicant must submit evidence within one month of receiving the Opponent's evidence. Failure to do so may result in the Opposition being deemed withdrawn or the application being deemed abandoned. Exhibits should be filed along with the affidavits or declarations. The rules of evidence applicable in the Federal Court generally apply (it is important to contact a trademark agent or lawyer to understand the nuances of these rules). If a party fails to provide relevant evidence within their knowledge, the Registrar may draw a negative inference from that absence. Parties can cross-examine each other on this evidence, but the party conducting the cross-examination must file a transcript of the cross-examination, exhibits, and any submitted documents within the designated timeframe. The party requesting the cross-examination is responsible for meeting the timelines set by the Registrar. If a party delays in fulfilling undertakings, the Opposition Board can set a deadline. Written and Oral Arguments Following the exchange of the evidence and the cross-examination, both the Applicant and the Opponent can present their arguments to the Registrar in written format. The Registrar will provide written notice, allowing the parties to file written arguments within one month. No arguments can be filed after this period without the Registrar's permission. An extension of time to submit arguments can be granted by the Registrar, with sufficient reasons and the consent of the other party. Generally, no further extensions will be granted after one extension has been given. Once the parties have filed their written arguments or the filing period has expired, the Registrar notifies each party that an oral hearing may be requested. Within one month of receiving this notice, a party can request the oral hearing, and the Registrar will provide a notice with the hearing's details. Hearings can also be conducted via teleconference if requested. If no oral hearing is requested, the Registrar will make a decision based on the written arguments. The Opponent has the initial burden of providing evidence for each ground of opposition, while the applicant has the burden to establish the registrability of their mark. Following the hearing, the Registrar will issue a decision either refusing the application, rejecting the opposition, or allowing the application in part. Conclusion The process of a trademark opposition can be a complex and intricate journey that requires careful attention to detail and goes from filing an Opposition, to filing a counterstatement, to presenting evidence, to engaging in cross-examinations, to submitting written arguments, and to appearing in an oral hearing. It is crucial to seek professional guidance from a trademark agent or lawyer to effectively navigate through the nuances of this process. Andrew Roy Legal offers both trademark agent and trademark lawyers’ services. Let us help guide you through the trademark opposition process, whether your application for a trademark is being opposed, or you need to oppose one that is infringing on your IP rights. Contact us today to learn more about how we can assist you. The information in this article is not legal advice and does not establish an attorney-client relationship. © 2023 Andrew Roy