Category Archives: Foreign Law

Often Forgotten: Registering as a Foreign Corporation

Your company may be a foreign company.  Where your company, for example, has operations or makes sales, outside of its home jurisdiction it may be required to register as a foreign corporation in those other jurisdictions.

The most common situation I encounter is a federally (Canada) incorporated company operating in any Canadian province or territory.  While federal incorporation involves listing the company’s head office, the company is still required to register extra provincially where it is doing business.  For example, a federal corporation with a head office in BC would register extra provincially in B.C.

On the U.S. side, the same applies to a Delaware corporation that has a head offices in another state, for example California, and requiring the company to register as a foreign corporation in that other state.  As such, all Delaware incorporated startups based in California are (or should be!) registered foreign corporations in California.

Each jurisdiction has different rules defining when your company has to register as a foreign corporation.  A head office is only one way to be considered a foreign corporation.  As a founder, it’s less important to understand the exact requirements (that’s the lawyers job) than to understand that doing business in jurisdictions outside of where you are incorporated may require the company to register as a foreign corporation.

Using the DMCA to Limit Liability for 3rd Party Copyright Infringement

Worried about lawsuits resulting from 3rd parties infringing copyright through your website or application?  The US Digital Millennium Copyright Act (“DMCA“) may be a solution!  The DMCA contains a safe harbour that protects online service providers from liability for copyright infringement committed by 3rd parties on/through the service.  At the outset, you should already qualify as a service provider as it is any businesses that operates a website or other Internet services (mobile applications, games connected to the Internet etc.) or facilities.

In order to take advance of the DMCA, your company will need to comply with a number of simple steps (in part):

1.  Designate a Copyright Agent to receive DMCA notices with the US Copyright Office;

2.  Post the Copyright Agent’s contact information on your website;

3.   Adopt, implement and communicate to users a policy to prevent/terminate repeat infringers; and

4.  Quickly respond to DMCA notices.

In addition to meeting a number of additional elements that are not covered in this post.

The focus of this post is on the Copyright Agent.  Frequently, companies are denied the above DMCA safe harbour simply because they have not complied with the Copyright Agent terms, a shocking result especially as compliance is relatively simple.

The first requirement is to appoint the agent.  This is done by filling out a form (http://copyright.gov/onlinesp/agent.pdf) that designates the agent and by sending it, along with payment, to the US Copyright Office.  The agent’s role is to respond to DMCA notices and, as such, needs to be a person within the company that understands the DMCA notice process or the company’s legal counsel.  Typically, the company’s legal counsel acts as the Copyright Agent barring sufficient internal DMCA expertise.

The second requirement is to post the agent’s information on your website.  Again, another simple step.  Usually the agent’s contact information is placed in the Terms of Service Agreement governing your website in a separate section concerning the DMCA, the copyright agent and the DMCA notice process.

If you are a U.S. company, check to see if you are in compliance with the DMCA so that you may take advance of the safe harbour described above.  Additionally, for certain Canadian companies, it may be a prudent business decision to comply with the DMCA (check with your legal counsel).

Startup Cross-Border Legal Issues: 3 Areas to Watch

1.  Securities Law:  If your startup is selling shares or other forms of investment, securities law applies.  In the cross-border context, you may need to comply with the securities laws of your jurisdiction AND those of the purchaser’s jurisdiction.  For example, if a B.C. company sells shares to a U.S. investor, both B.C. and U.S. securities law applies.

Ultimately, as a startup founder, your role is to understand that the securities laws of multiple jurisdictions may apply to a transaction and ensure that your legal advisors address these laws.

2.  Privacy Law:  The privacy laws of every jurisdiction in which your startup has users (theoretically) apply.  In this respect, every startup has cross-border privacy law issues.  Nonetheless, to comply with the privacy laws of every  jurisdiction from which your users originate is, for an early-stage startup, incredibly expensive and time-consuming.

In my opinion, it makes financial sense to comply with the privacy laws of your startup’s jurisdiction and, as your company grows, the privacy laws of each jurisdiction in which you gain traction.  The basis for this approach being the assumption that a company may only face privacy law issues when it achieves traction in a particular market.

3.  Tax:  Need I say more?  Cross-border taxation issues are always a concern when your startup is doing business outside its home jurisdiction.  Tax is far too complex for a brief blog post – simply put, always keep tax in mind.

In sum, all startups face cross-border legal issues, if only due to the borderless nature of the Internet.  At a minimum, it’s important for startups to recognize the potential for the laws of other jurisdictions to impact their company and to plan compliance with these laws.

The Canadian – U.S. Swap: Moving an Early-Stage Canadian Startup to the U.S.

In previous blog posts I suggested that incorporating in Canada is not a substantial hindrance to receiving U.S. investment.  In some situations, the U.S. investor could require the Canadian company to become a U.S. (likely Delaware) company.  While this sounds simple in practice, how does this Canadian-U.S. company swap work?

While each investment is different, one approach is as follows:

1.  The investor and Canadian company reach an agreement on investment terms.  This agreement also lays out the steps that must be completed as part of the deal (both before the deal is closed, and after) to facilitate the swap.

2.  A U.S. company is incorporated (likely Delaware).  This company will receive investment from the U.S. investor.

3.  The U.S. company acquires the Canadian company through a share exchange whereby shares of the U.S. company are exchanged for shares of the Canadian company.  Through this exchange, the Canadian founders/other shareholders receive equivalent equity in the U.S. company as they had in the Canadian company and the Canadian company becomes owned, 100%, by the U.S. company.

4.  Investment is made in the U.S. company.

There are also additional considerations, such as how the Canadian subsidiary will be used going forward and ownership of intellectual property.  Ultimately, the steps above aim to show you that a Canadian incorporated startup can be later swapped for a U.S. company to satisfy an investor.