This text is part of the special section Le droit au Québec
“We are probably the only lawyers to work with an Excel spreadsheet! jokes Ali El Haskouri, a partner at Lavery and a specialist in business law, more specifically in financing, mergers and acquisitions and general questions relating to commercial and corporate law. Whether they work with investors (such as banks) or entrepreneurs, lawyers specializing in business law find themselves at the center of negotiations.
There are two main categories of financing for businesses: debt (a bank loan, for example) and shareholding, or equity investment. “Lawyers can be involved in both categories,” explains Patrick Mignault, professor at the Faculty of Law of the Université de Sherbrooke and specialist in business law.
Advisory role
If we have access to more and more information, the sinews of war today is the advice around these documents. There are models on the Internet, but do they correspond well to Quebec law (and not French), and to the particular situation of each one? “The lawyer has a good knowledge of the market, he knows the negotiable standards. He plays an advisory role, he is not just there to make a contract,” says Étienne Brassard, partner in business law (expertise in financing and real estate) at Lavery. “Business lawyers specializing in the field of finance know the problems of the market, what is acceptable or not, where to seek the advantages compared to the banker, and where to stop, so as not to let the deal. »
The danger, when you do not involve a lawyer, is to find yourself in a situation where it is not clear; it can lead to litigation. Ultimately, our job is to give litigation lawyers a little less work!
In the case of a loan by a bank, the lawyer ensures that the contract respects the rules of law and the interests of the parties. In the case of equity financing, the contract for the issuance of shares establishes the value of the shares according to the risk of the company. “The contract will attempt to circumscribe this risk and obtain guarantees from the companies,” explains Mr. Mignault. Listed companies must also comply with securities regulations.
Understand the ins and outs
Two partners, an investment of $50,000 each and a food truck. What could go wrong? “We sometimes see people arriving with documents already signed even though they did not know their rights and the consequences of their partnership,” notes Ali El Haskouri. Getting advice avoids unpleasant surprises. “The business lawyer will ensure that the relationship between the parties works and will attach this relationship by contract, defining the roles and responsibilities of each”, summarizes Étienne Brassard. “Ideally, the lawyer works well upstream,” underlines Mr. Mignault. This early involvement avoids frustrations that may arise later in the process.
Agreement on the sharing of information, control and management of the company, intellectual property rights… the documentation and partnership negotiation relate to several points in addition to those of a purely financial nature. “The danger, when you don’t involve a lawyer, is to find yourself in a situation where it’s not clear; it can lead to litigation. Ultimately, our job is to give litigation lawyers a little less work! remarked M.and El Haskouri.
Complex files
The need to consult a legal advisor is even more pressing when dealing with specialized expertise such as new technology companies. “But the reality of our practice is that a $100,000 or $100 million case raises the same legal issues,” said Ms.and Brassard, although a good legal advisor will adapt his priorities according to the size and needs of the company.
The pandemic has also shaken up the environment, leading to a significant jump in mergers and acquisitions and financing requests over the past two years. “We see a lot of injections of funds into the market and we feel an appetite for risk on the part of investors and banks,” notes Ms.and El Haskouri.
Financing structures are becoming more complex, with more and more capital available for business start-ups and rapid access to liquidity. “There is a lot of money in the system and in that time, it becomes money a little less intelligent and it leads to risky transactions”, warns Mand Armband. The appearance of complex financial products makes the support of a legal advisor even more essential.
To avoid long-term costs, it is therefore better to adopt a preventive approach. “It will cost us less in the end, because business lawyers will anticipate what may happen and will protect their clients,” concludes Mr. Mignault.