Business Law

New prompt payment legislation for the construction industry came into force on August 29, 2022. This changes how the industry operates by regulating invoicing and payments, and speeding up the dispute and adjudication process.

What is the Prompt Payment and Construction Lien Act?

Prior to August 29, 2022, prompt payment laws for the construction industry were compiled in the Builders’ Lien Amendment Act. These laws did not include payment timelines in the industry. The new Prompt Payment and Construction Lien Act (PPCLA) introduces some major changes, including strict payment deadlines and a new adjudication system to fast-track dispute resolution.

The purpose of the new Act is to “help ensure contractors and subcontractors get paid on time”, and to “strengthen Alberta’s economic recovery and protect jobs”.

Additionally, the Government of Alberta introduced the Prompt Payment and Adjudication Regulation which prescribes a new adjudication regime under the PPCLA, and the Builders’ Lien Forms Amendment Regulation which prescribes various forms of notices referenced in the PPCLA.

How Alberta’s New Prompt Payment Legislation Works

Under the PPCLA, this is the new legal process for payment in the construction industry:

• A contractor must provide an invoice to the owner every 31 days.
• Upon receipt of a proper invoice, the owner has 14 days to object.
• If there is no objection, the owner has 28 days to pay.
• Once the contractor receives payment, they must pay subcontractors within 7 days.

Let’s clarify a couple of terms used in the PPCLA.

Prompt Payment

“Prompt payment” refers to specific timelines prescribed by the PPCLA, as follows:

By an owner to a contractor—28 days after receipt of the proper invoice

By a contractor to a subcontractor—7 days after receiving payment from the owner

Proper Invoice

A “proper invoice” is a written request from the contractor for payment from the owner that includes:

• The contractor’s name and business address
• The invoice date and the period during which the work was done or materials were furnished
• Reference to the contract under which the work was done or materials were furnished
• A description of the work done and materials furnished
• The amount requested for payment
• A breakdown of the payment terms
• The name, title and contact information of the person to whom the payment is to be sent
• A statement that the invoice is intended to be a proper invoice
• Any other requirements as specified in the contract

How Are Invoice Disputes Resolved Under The PPCLA?

If an owner objects to an invoice—either to the validity of the invoice or to the payment application—they have 14 days to dispute it. The dispute must be in the form prescribed in the regulations, and must specify if the owner is disputing all or only a portion of the invoice. It must detail the reasons for non-payment.

If the owner is only disputing a portion of the invoice, the undisputed portion must be paid within 28 days of receiving the proper invoice.

If a contractor disputes a subcontractor’s entitlement to payment, the contractor must provide the subcontractor a notice of non-payment that details the amount not being paid and the reasons for non-payment. The notice of non-payment must be given to the subcontractor:

• within 7 days of receiving the notice of dispute from the owner, or
• within 35 days of giving a proper invoice to the owner if the owner didn’t give a notice of dispute.

When a contractor sends a notice of non-payment to a subcontractor because of non-payment by the owner, the contractor must begin the process of adjudication within 21 days of giving the notice.

Adjudication

Adjudication is a streamlined process of dispute resolution outside of court. The PPCLA intends to facilitate the speedy resolution of disputes. The goal is to resolve all disputes within 60 days (excluding Saturdays and statutory holidays) from the date of commencement.

An adjudicator is appointed by a Nominating Authority to preside over the adjudication. When someone wants to initiate adjudication, they must provide notice to the other party and the Nominating Authority on the same day. This process is not available after the completion of a contract unless all parties agree to it.

The types of dispute adjudication can resolve include:

• Valuation of services or materials
• Change orders
• Non-payment
• Lien fund amounts owed at the end of a contract
• Any other matters the parties agree to adjudicate

An adjudicator has the authority to order payment within a specified time period and to allow unpaid parties to cease contracted work until they receive payment.

The adjudication timeline is as follows:

1. Once the notice of adjudication is delivered, parties have 4 days to agree on an adjudicator.
2. Once the parties agree to an adjudicator, or if the 4-day period expires without an adjudicator agreement, the Nominating Authority has 7 days to appoint the adjudicator.
3. Once the adjudicator is appointed, the initiating party has 5 days to provide a notice of adjudication, a copy of the contract, and a copy of all other documents to the adjudicator and the other party.
4. Upon receipt of the notice of adjudication, the responding party has 12 days to provide a response to the adjudicator and the other party.
5. The adjudicator must issue a decision within 30 days of receiving all the documents from the initiating party.

The adjudicator may require the responding party to respond earlier than the prescribed 12 days, and may also extend any deadline in the process by up to 10 calendar days, as necessary.

Does the Prompt Payment and Construction Lien Act affect me?

The PPCLA applies to all construction contracts and subcontracts entered into on or after August 29, 2022. It also applies to regulated professional engineers and regulated professional architects who act in a consultant capacity.

This new legislation does not affect obligations of a contractor to pay employees, nor does it apply to “public works” as defined by the Public Works Act or agreements to finance and undertake an improvement to which the provincial Crown or an agent of the Crown is a party.

Questions About The PPCLA?

There are more details about the new legislation we didn’t cover in this post, including details about concrete lien periods, progressive holdback release, and interest rates. As is often the case with new legislation, there are exceptions to some rules, and the application of these laws can vary.

To ensure you are in line with the new PPCLA, it’s important to review your contracts and invoices, accounting protocols, and dispute and adjudication procedures.

If you still have questions about the Prompt Payment and Construction Lien Act, the team at Getz Collins and Associates is happy to walk you through the changes and how they affect your specific situation. Contact us today.

What’s the difference between an asset purchase and a sale purchase? Is it better to buy assets or shares? If you’re buying or selling a business, which is right for you? There are advantages and disadvantages of both an asset purchase and a sale purchase, and the option you choose can significantly impact your business in various ways.

What’s The Difference Between An Asset Sale And A Share Sale?

Both an asset sale and a share sale are a purchase of the entire business, but there are legal differences between the two.

What Is An Asset Sale?

An asset sale involves the individual sale of the business’s assets. Assets include everything that make up the business, both tangible and intangible, such as:

• inventory,
• land,
• equipment,
• customer lists,
• supplier lists,
• accounts (receivable and payable),
• contracts,
• trade names,
• emails and phone numbers,
• intellectual property, and
• goodwill.

The purchaser must ensure that every asset they want is explicitly listed in the purchase agreement.

An asset sale is more complex than a share sale, but it allows the purchaser to pick and choose the components of the business they want and to avoid undesirable assets like debt and liabilities. For example, a purchaser may desire the business name, inventory, and customer lists, but because of plans to set up shop at a different location and use different suppliers, they don’t need to buy the property or supplier lists.

What Is a Share Sale?

A share sale involves the purchase of ownership of a corporation. The purchaser buys the company shares and takes over complete ownership and control of the business. They become the new shareholder. This type of sale is only applicable if the corporation is incorporated.

Due diligence is crucial for the purchaser in a share sale because all assets, liabilities, and obligations of the company are transferred to the new owner. This includes taxes owed and outstanding debt.

Asset Sale vs Share Sale: What to Consider

How do you decide if an asset sale or a share sale is right for you? There are various things to consider, including the type of business, tax implications, and potential liabilities.

Is An Asset Sale Right For You?

If the business is not incorporated (such as a sole proprietorship or a partnership), an asset sale is automatically your only option. However, you can still choose an asset sale for an incorporated company.

As a buyer, an asset sale is advantageous because it allows you to purchase only the parts of the business you want. You’re not obligated to take on the liabilities of the company, nor are employment contracts automatically assigned to you.

It’s important to consider the undepreciated capital costs (UCC) of the assets. The UCC is the current value of depreciable assets recorded on the corporation’s tax return after the depreciation deductions. For the buyer, a higher UCC means higher future deductions. But for a seller, a higher UCC can mean higher capital gains tax.

Is a Share Sale Right For You?

A share sale is typically much simpler than an asset sale because it’s a complete transfer of the entire business, not the individual parts of the business.

Sellers usually prefer share sales because it eliminates the risk of being left with unwanted assets and liabilities. They also receive the benefit of the Lifetime Capital Gains Exemption available under the Income Tax Act.

If the undepreciated capital costs (UCC) of the company’s assets are nearly nonexistent, or if the fair market value of the assets are less than the company’s tax costs, a share sale is better for the buyer.

Do This Before You Sign an Asset Deal or Share Deal

If you’re buying or selling a business, there are pros and cons to both an asset deal and a share deal. Consider the potential liability and tax implications of each option and perform due diligence. Protect your investment by choosing the right type of business deal.

Generally, purchasers prefer asset deals and sellers prefer share deals, but there are many exceptions to this. Every situation is unique, and your motivations can change the typical preferences. Always talk to a business lawyer and your accountant before signing any documentation for a business sale or purchase!

The business lawyers at Getz Collins and Associates offer practical legal advice to help you navigate buying and selling a business. Contact us today for legal advice about asset deals and share deals.

There are various types of shareholder agreements, and a unanimous shareholder agreement is one of them. In this post, we’ll answer the top 3 questions about unanimous shareholder agreements, including:

1. What is a unanimous shareholder agreement?
2. Why should shareholders consider putting a unanimous shareholder agreement in place?
3. What does a unanimous shareholder agreement include?

If you’re a shareholder or a corporation owner, it’s important to know the following information about unanimous shareholder agreements.

What is a Unanimous Shareholder Agreement?

A unanimous shareholder agreement (USA) is a contract about the governance and management of a corporation. The agreement is between all the shareholders of the corporation, and it details their rights and obligations to each other and to the corporation.

The Canada Business Corporations Act defines a USA as a “lawful written agreement among all the shareholders of a corporation, or among all the shareholders and one or more persons who are not shareholders, that restricts, in whole or in part, the powers of the directors to manage, or supervise the management of, the business and affairs of the corporation.”

The Act explains the purpose of a USA as three-fold:

1. To give shareholders the power to govern and manage the business by placing restrictions on the power of directors
2. To specify means of dispute resolution
3. To dictate how shareholders can join or exit the corporation

A unanimous shareholder agreement works best for corporations with only a small number of shareholders.

Why Should Shareholders Consider Putting A Unanimous Shareholder Agreement In Place?

Having a unanimous shareholder agreement in place provides several benefits to the company and its shareholders. Perhaps the foremost benefit is that it minimizes conflict and empowers owners and shareholders to operate and grow the business without the distraction of defending decisions and trying to protect the company.

It’s common for corporate start-ups to assume conflict won’t be an issue. After all, a business is born of a vision, and people don’t invest in a business if they don’t believe in the vision. Add to this all the other legal matters involved in starting a business, and putting a USA in place is often overlooked.

But a USA is like insurance—you don’t think you need it until you do. Setting up a unanimous shareholder agreement from the start saves a lot of hassle and protects the corporation from costly and lengthy litigation. Its clear plan for decision-making and share transfers helps avoid deadlocks and is particularly useful when share ownership changes unexpectedly.

What’s Included in a Unanimous Shareholder Agreement?

A unanimous shareholder agreement includes provisions that:

• Empower shareholders to govern and run the company
• Resolve disputes and deadlocks
• Decide how shareholders can join or leave the company, and how shares can be transferred

A USA lays out the rights and obligations of shareholders, including fundraising and capital contributions. It provides mechanisms for settling disputes by specifying when a majority vote can be employed and how to resolve other disagreements. And it details how shares can be transferred in specific situations, such as when a shareholder leaves the company or dies.

There are several common provisions in a USA that apply to share transfers, including:

• Drag-along—Prohibits minority shareholders from blocking the sale of the company if a majority shareholder wants to exit
• Piggyback or tag-along—When a shareholder sells their shares to a third party, other shareholders can “piggy-back” or “tag along” on the sale by including their own shares in the deal and exiting the company
• Right of first refusal—Shareholders get the first chance to buy shares that are being sold, even if a third party offers to buy them first
• Shotgun—Typically used when relationships deteriorate and one shareholder wants to exit the company. The shareholder can set the terms and price at which they will sell their shares or buy the shares of another shareholder. The other shareholder(s) must decide if they will buy or sell shares based on the terms and price presented.

What You Should Know Before You Enter a Unanimous Shareholder Agreement

Shareholders should understand that a USA may impose liabilities on them that would otherwise be placed on the directors, such as paying salaries and wages. It’s important to be aware of the risks before signing such a contract.

While a USA provides valuable benefits, it’s not a one-size-fits-all contract. To ensure its effectiveness, your company’s USA should be customized and structured properly for your business.

The corporate lawyers at Getz Collins and Associates can draft a unanimous shareholder agreement for your company. We can review existing agreements and advise shareholders on their rights, and the risks and obligations of entering into a specific agreement. Contact us today.

If you have recently started a business, you may be wondering if you should incorporate. It is a good time to incorporate if your business has obtained or developed value, is ready to enter contracts, or is looking for funding.

A corporation is a legal entity that is separate and apart from its owners (shareholders) and has the same rights and obligations as a natural person. In this post we will address various benefits to incorporating your business, including:

1. Limited liability;
2. Tax benefits;
3. Corporate governance; and
4. Access to financing

Limited Liability

Incorporation provides a barrier between the owner’s personal assets and those of the business. The corporation is responsible for its obligations, debts, and actions. Should a corporation incur debts it cannot pay, creditors of the corporation can only obtain the personally held assets of the business owners in specific circumstances. Your personal assets are not normally at risk being held liable for unpaid debts or bankruptcy of an incorporated business.

Tax Benefits

There are many factors to consider when contemplating the tax effects of incorporating. If you are considering incorporating your business, you should meet with an accountant to discuss these considerations.

There are some benefits that may be applicable to your business:

• Deferrals – a corporation can retain income to defer personal tax.
• Deductions – some businesses may qualify for a small business deduction (lower corporate tax rate).
• Capital Gains – in certain circumstances, the shares of a corporation may qualify for a lifetime capital gains exemption, allowing you to dispose or transfer shares to your children or spouse at a reduced tax rate.
• Estate Planning – incorporating your business with an appropriate share structure provides more flexibility on transferring your business to family members during your lifetime or upon your death.

Corporate Governance

An incorporation has structures, processes, practices that the business can use to manage its affairs. By planning the corporate structure of your business, you can dictate the rights, responsibilities, and involvement of stakeholders in the business. Key actors in the corporate structure include:

• Shareholders – the owners of the business. Voting shareholders elect directors to manage the day to day business operations and participate in certain major decisions the corporation may make.
• Directors – the board of directors manage the daily operations of the corporation. The directors of the corporation owe duties and obligations to the corporation.
• Officers – officers are elected by directors to carry out the daily operations of the business.

Access To Financing

While many new businesses do not have the assets that would allow them to easily secure financing from traditional lenders, businesses that are incorporated will be more attractive to lenders and investors as they become profitable. Additionally, corporations may be able to access grants and government funding that are not available to unincorporated entities.

There are many benefits to incorporating but business owners must be aware of the obligations of incorporation. They include:

• Annual Returns – Annual regulatory filings are required for a corporation to remain in good standing.
• Corporate tax returns – Annual corporate tax returns must be completed for a corporation. These filings are separate and apart from an owner’s personal tax returns.
• Administration – Annual filings, transactions, and corporate activities need to be properly registered and/or documented in the corporation’s minute book. The proper completion of these steps often requires engagement of professionals.

Before you incorporate your business, contact a corporate lawyer at Getz Collins and Associates. We can advise of relevant considerations and assist you in making this important decision.

“Per Capita” is from the Latin for “by the heads,” while “per stirpes” is Latin for “by the branch.” While this may seem symbolic, the definitions are quite literal in a legal sense.

The “head” and the “branch” to which these Latin terms refer are those of the family tree. These two terms have entirely opposite meanings regarding how your assets are distributed to your beneficiaries and, if confused, can cause drastic developments in your intended lineage.

What Does ‘Per Stirpes’ Mean for Your Beneficiaries?

If the legal term ‘per stirpes’ is found in a will, it stipulates what happens if a beneficiary passes before the will’s owner. If it were written as per stirpes, that means the beneficiaries’ heirs will receive an inheritance upon the deceased’s behalf.

In a typical scenario, these secondary beneficiaries would be the children of the intended inheritor. Or, possibly, the next closest person under the grantor’s family tree following the branches.

What is ‘Per Capita’ in a Will?

Suppose a will states that inheritance is to be per capita. In that case, that expresses that the grantor wishes an arrangement in which the estate or inheritance is to be distributed evenly amongst surviving heirs if a beneficiary were to die before the will is read.

If an heir is one of two or more beneficiaries designated within a will, per capita means the heir has a chance at inheriting more than an equal share. However, this would only occur if one of the fellow heirs were to die before the estate was distributed.

How Does the Difference Between ‘Per Capita’ and ‘Per Stirpes’ Affect the Bottom Line?

While setting up your final wishes, you will want to pay close attention to the wording. If you or your estate lawyer uses the wrong Latin phrase, you may end up distributing your assets in a way you did not wish them to be.

Remember that ‘capita’ is ‘head,’ meaning that in the case of an heir’s death, the inheritance goes back up to your spot on the family tree and then trickles down all of the branches evenly. Using per capita could result in unwanted heirs. More likely, a disagreement in who should possess which non-liquid inheritance may cause assets to be sold to be distributed evenly.

Alternatively, ‘stirpes’ or ‘branches’ means that the inheritance will continue down the branch after a beneficiary passes away to their heirs. Proper use of stirpes puts the onus of appropriate distribution into a smaller amount of hands and hopefully allows for fewer disagreements.