Building a technology company in British Columbia is an exciting undertaking. Vancouver has one of the most active startup communities in Canada, and founders here have access to strong talent, investors and government support. What many founders underestimate is how much the legal decisions made in the first few weeks will shape the company for years. A share structure set up in a hurry, intellectual property that never quite made it into the company, or a missing shareholders’ agreement can become expensive problems the moment an investor or buyer starts asking questions.
At Whiteboard Law, we work with founders, technology companies and growing businesses across British Columbia. This checklist sets out the key legal steps we recommend when incorporating a tech startup in BC, so that the company is ready for growth, investment and, eventually, an exit.
1. Choose between a BC company and a federal corporation
The first decision is where to incorporate. A BC company is incorporated under the Business Corporations Act (British Columbia), while a federal corporation is incorporated under the Canada Business Corporations Act (CBCA). Both are well understood by investors, banks and the Canada Revenue Agency.
A BC company is often the simpler and more cost-effective choice for a startup that will operate primarily in British Columbia. There are no Canadian residency requirements for directors, which matters for founding teams with members outside Canada. A federal corporation offers broader name protection across Canada and can be attractive for a business that plans to operate in several provinces from day one, although it will usually also need to register extra-provincially in each province where it carries on business. The right answer depends on the founders, the business plan and where the company expects to raise money, and it is worth a short conversation before filing.
2. Get the share structure right from the start
The share structure is one of the most important decisions a technology startup makes. Founders frequently start with a single class of common shares, which works well in the early days. As the company grows, it may need preferred shares for investors, a separate class for an employee incentive plan, or shares that allow a founder’s holding company to participate.
Founder vesting is equally important. When co-founders each receive a block of shares on day one with no vesting, a founder who leaves after six months can walk away with a large stake in a company the others continue to build. Investors expect to see founder shares subject to vesting, usually over three or four years, with appropriate rights for the company to repurchase unvested shares. Setting this up at incorporation is far easier and cleaner than trying to impose it later.
3. Put a shareholders’ agreement in place
A shareholders’ agreement is the rulebook for the relationship between the owners of the company. It deals with who sits on the board, how major decisions are made, what happens if a founder leaves, dies or becomes disabled, how shares can be transferred, and how disputes are resolved. It also typically includes rights of first refusal, drag-along and tag-along rights, and confidentiality and non-solicitation obligations.
Many co-founder disputes we see could have been avoided, or resolved quickly, if the founders had agreed on these points while relationships were good. A well-drafted shareholders’ agreement does not need to be complicated, but it should reflect how the founders actually intend to run the business.
4. Make sure the company owns its intellectual property
For a technology company, intellectual property is often the most valuable asset on the balance sheet. A surprisingly common problem is that the code, designs, domain names, trademarks and know-how were created by the founders before the company existed, or by contractors who were never asked to sign an assignment. In that situation, the company may not actually own the technology it is selling.
Every founder should sign an intellectual property assignment transferring any pre-incorporation work to the company. Every employee and contractor who contributes to the product should sign an agreement that assigns their work to the company and includes a waiver of moral rights and appropriate confidentiality terms. Investors and buyers will look for these documents during due diligence, and gaps can delay or derail a financing round or sale. Founders should also consider registering key trademarks early, before investing heavily in a brand.
5. Set up proper agreements with employees and contractors
As the team grows, written employment and contractor agreements protect both the company and the people working for it. These agreements should clearly set out compensation, duties, intellectual property ownership, confidentiality, and termination terms that comply with BC employment standards. Where team members receive equity, stock options or other incentives, those arrangements should be properly documented under a written plan approved by the board. Informal promises of equity, often made in the excitement of the early days, are a common source of later disputes.
6. Address privacy, data and AI from day one
Most technology products collect personal information. Private sector organizations in British Columbia are generally subject to the Personal Information Protection Act (BC), and businesses that handle personal information across provincial or national borders may also be subject to federal privacy law. A startup should have a clear privacy policy and terms of service, and should understand where its data is stored and who has access to it.
Companies that build artificial intelligence into their products face additional questions about training data, ownership of outputs, customer disclosures and contractual limits on liability. Addressing these issues in the company’s customer contracts and policies early is much easier than retrofitting them once enterprise customers start asking.
7. Understand the corporate transparency rules
Private BC companies must maintain a transparency register identifying their “significant individuals”, which generally means individuals who directly or indirectly hold or control 25% or more of the company’s shares or votes, or who can elect or remove a majority of the directors. The register must be reviewed and updated regularly. The province has also announced that private BC companies will be required to file their transparency register information with the BC Registrar for a new public register, so founders should keep this information accurate and current.
Federal corporations face similar rules. Since January 22, 2024, CBCA corporations have been required to file information about their individuals with significant control with Corporations Canada at incorporation, annually and within 15 days of any change, and some of that information is made available to the public. Failing to comply with either regime can result in penalties for the company and its directors.
8. Plan ahead for raising capital
Most tech startups raise money at some point, whether from friends and family, angel investors, venture capital funds or strategic partners. In Canada, the sale of shares, convertible notes, SAFEs and other securities is regulated by securities law, and a private company must rely on an available prospectus exemption, such as the private issuer, family, friends and business associates, or accredited investor exemptions. Some exemptions require specific forms, investor acknowledgements or filings with the BC Securities Commission.
Getting the paperwork right on early financings matters. Investors in later rounds will review every prior issuance, and errors in earlier financings can be costly to correct. A properly maintained capitalization table and clean financing documents make the company far more attractive to investors.
9. Keep the minute book and annual filings up to date
Every BC company must keep corporate records, often called the minute book, including its articles, registers of directors and shareholders, the transparency register, and resolutions of the directors and shareholders. BC companies must also file an annual report with the BC Registrar each year. A company that falls behind on its annual reports can eventually be dissolved, and an incomplete minute book is one of the most common issues raised in due diligence for a financing or sale.
We recommend that startups treat corporate records as an ongoing discipline rather than an afterthought. Approving share issuances, director changes and major contracts by proper resolution at the time they happen is far cheaper than rectifying the records years later.
10. Bring in your accountant early
Tax planning for a technology company can be significant, including the structure of founder shareholdings, the use of holding companies and access to government programs and incentives. We do not provide tax advice, and we recommend that founders speak with a qualified accountant before finalizing their share structure so that the legal and tax plans work together.
Frequently asked questions
Should I incorporate my startup in BC or federally?
For most startups operating mainly in British Columbia, a BC company is simpler and less costly. A federal corporation may make sense if the business will operate across several provinces from the outset or needs Canada-wide name protection.
When should co-founders sign a shareholders’ agreement?
Ideally at or shortly after incorporation, before significant work is done or money is invested. Agreeing on the rules while everyone is aligned is much easier than negotiating them during a dispute.
Does my company automatically own the code I wrote before incorporating?
No. Work created before incorporation generally belongs to the individual who created it until it is assigned to the company in writing.
What is a transparency register?
It is a record that private BC companies must keep identifying the individuals who hold or control a significant interest in the company, generally 25% or more of the shares or votes.
Talk to a Vancouver business and technology lawyer
Whiteboard Law is a business, technology and AI law firm serving founders and companies throughout British Columbia, with a particular focus on Vancouver. Our senior lawyers advise on incorporations, share structures, shareholders’ agreements, intellectual property, technology contracts, capital raising and mergers and acquisitions. If you are starting or growing a technology company, we would be pleased to help you build it on a solid legal foundation.
Contact us at 250-300-4652 or admin@whiteboardlaw.com to arrange an appointment.
This article provides general information only and is not legal advice. You should obtain advice about your specific circumstances before acting on any of the information above.