Legal Terms Every Entrepreneur Should Know
There are plenty of documents to sign, agreements to draft, policies to prepare, and legal consequences to consider along the entrepreneurial journey, and unfortunately, not everything is written out in simplified language. You will likely come across legal jargon and legalese that may tempt you to skim through the legal terms, scroll to the last page, and just sign. Resist the temptation!
Our legal experts have assembled this quick-reference glossary for you to familiarize yourself with the legal terms you’re likely to encounter.
A
Acceptance
An essential element of contract formation. Upon receiving an offer, the recipient must accept the terms of the offer to enter into a valid contract. Acceptance must be communicated back to the offeror in whatever terms were specified by the original offer.
Advisor Agreement
An agreement used to secure strategic business advice to help your company grow. Advisors typically expect compensation for their services, including cash and/or equity compensation.
Learn more about creating an Advisor Agreement through Goodlawyer here.
Agent
A person who is authorized by another (the principal) to act as their representative. The Agent can legally bind their principal through the Agent’s actions and decisions.
Annual Meeting
A yearly meeting of the shareholders of a corporation to elect the directors of the corporation and appoint or waive the appointment of an auditor for the corporation.
Arm’s Length
See also, “Non-Arm's Length.” A business relationship or contractual arrangement between parties that do not share close, personal ties to one another (such as familial relations, common ownership, or common management). Arm’s Length business relationships do not generally raise concerns of conflicts of interests.
Articles of Incorporation
The foundational legal document that must be filed when incorporating a business. Articles of Incorporation usually contain information including the name of the corporation, where the corporation is located, the directors of the corporation, types of shares the corporation is permitted to issue, and any restrictions on the corporation’s business.
For more information on the basics of Articles of Incorporation, check out this Goodlawyer blog post.
Assets
Any kind of property, whether physical, digital, or informational that has some form of value to its owner. In financial accounting, an Asset is any resource owned or controlled by a business or an economic entity. An Asset is anything that can be used to produce positive economic value.
Assignment
The act of transferring rights from one party to another. This is usually done through a written agreement. An individual transferring a right must have the initial right and ability to do so; you can’t give what you don’t have. For example, intellectual property (IP) rights can be assigned by contract from an employee to an employer.
Learn more about getting an IP Assignment Agreement on Goodlawyer here.
B
Bad Faith
The negative intention behind someone entering a transaction. An action taken with the malicious intent to deceive, lie, or otherwise mislead another to gain an advantage.
Beneficiary
An individual entitled to an asset because of a legal instrument. For example, insurance policies compensate Beneficiaries upon the occurrence of a predetermined event.
Breach
The contravention of contractual terms or legal duties, usually resulting in legal consequences.
By-law
Rules created by a corporation that specify how it is governed. By-laws typically cover how shareholders’ and directors’ meetings are to be conducted, define officer positions and their appointment process.
C
Civil Law (Legal System)
See also “Common Law.” A system of laws that are codified (written) and do not include earlier court decisions. Quebec is the only jurisdiction in Canada that uses a civil law system, while the rest of Canada uses a common law system.
Common Law
See also “Civil Law (Legal System).” A system of laws that develops as courts issue decisions based on their interpretation and application of statutes (i.e. laws passed by Parliament or Provincial Legislatures) and earlier court decisions. Sometimes referred to as “judge-made” law. All Canadian provinces and territories use a Common Law legal system, except for Quebec which uses a civil law system.
Common Shares (or Shares)
See also “Preferred Shares.” A type of share issued by a corporation. Rights associated with Common Shares include a right to vote (i.e. to exercise control over the corporation), a right to receive a share of the corporation’s profits (i.e. dividends), and a right to receive a share of capital on winding up or dissolution of the corporation.
Compensation
The remuneration paid to an employee, contractor or advisor in exchange for services performed. In legal proceedings, Compensation can also refer to damages recovered for an injury sustained or loss.
Condition Precedent
A contractual condition that must be satisfied before an agreement comes into force. For example, a mortgage contract will have a condition precedent that an inspection to assess the condition and value of a property must occur prior to the mortgage contract taking effect. Conditions precedent can also exist throughout the life of a contract. These types of condition precedents are common in wills and trusts, where the transfer of money or property only occurs after certain conditions are satisfied, such as a beneficiary getting married or reaching a certain age. For example, if condition X occurs (the beneficiary turns 18), then event Y will occur (the beneficiary receives payment from the trust funds).
Consideration
An essential element of a legally valid and enforceable contract. Consideration is the payment or element of value that is given by one party in exchange for the counter party’s promises under a contract. Consideration does not need to be equal in value to promises or services to be performed under the contract, but it must have at least some value (e.g. $1 may be sufficient Consideration; a banana peel probably would not). For example, in the employment context, the exchange of Consideration is required to enforce the terms of an updated employment agreement. In this context, Consideration could be in the form of a pay raise, signing bonus, or promotion.
Contract
A legally-binding agreement between two or more parties that sets out each party’s rights and responsibilities. Courts may enforce rights and responsibilities under a Contract, and parties to the Contract may be liable to pay for damages if they breach the terms of the Contract.
Learn more about contract review services available with one of our Goodlawyers here.
Copyright
A type of intellectual property (IP) which gives the owner exclusive right to control publication, reproduction, and distribution of an original creative work for a defined period of time. Copyright covers the expression of ideas in the form of literary, artistic, dramatic, and musical works. Copyright lasts for the lifetime of the creator plus 50 years, after which it is transferred into the public domain. Copyright arises automatically, but can also be registered to make it easier to enforce.
For more information on the basics of Copyrights, check out this Goodlawyer blog post.
Learn more about registering your Copyright with a Goodlawyer here.
Corporation
A legal entity best suited to organizing and conducting business ventures. Corporations are separate legal entities that exist independently from the people who create and run them, meaning they can enter into contracts, pay taxes, and perform other transactions. Corporations are the preferred vehicles to conduct business because they can shield their owners, managers and employees from liability associated with the operation of the Corporation’s business.
D
Damages
A form of compensation given as a result of a wrongful act performed by one party to the detriment of another. In business settings, Damages can often arise from a breach of contract.
Debt
Debt is something, usually money, borrowed by one party from another. Debt is used by many corporations to make large purchases that they could not afford under normal circumstances. A Debt arrangement gives the borrowing party permission to borrow money under the condition that it is to be paid back to the creditor at a later date, usually with interest.
Demand Letter
A letter sent to demand specific action from a party that is in breach of its legal obligations (e.g. to demand repayment of a debt). Demand Letters are often sent in an attempt to resolve a breach of obligations before legal proceedings are initiated.
Learn more about drafting a Demand Letter with a Goodlawyer here.
E
Employment Agreement
Contracts that govern the relationship between employer and employee. At a minimum, Employment Agreements need to outline the employee’s position and duties, the number of hours the employee is expected to work, and how the employee will be compensated. More complex employment agreements might include provisions governing confidential information, intellectual property (IP) ownership, or bonuses, among other things.
For more information on going over a typical Employment Agreement, check out this Goodlawyer blog post.
Learn more about creating an Employment Agreement with a Goodlawyer here.
Employment Policies
These are documents created by companies to outline the behaviour and relationships expected between employees and employers. Common Employment Policies include codes of conduct, vacation and sick policies, and company mission statements.
Learn more about developing your Employment Policies with a Goodlawyer here.
Equity
Also referred to as shareholders' equity, Equity, represents the amount of money that would be returned to a company’s shareholders if all of the assets were liquidated and all of the company's debt was paid off in the case of liquidation. We can also think of Equity as a degree of residual ownership in a company or asset after subtracting all debts associated with that asset. Equity represents the shareholders’ ownership stake in the company, identified on a company's balance sheet.
F
Fiduciary Duty
A legal duty characterized by a relationship between two parties where one party (the Fiduciary) is obligated to act in the interest of the other. The party designated as the fiduciary owes a legal duty to a principal, and strict care must be taken to ensure that no conflict of interest arises between the fiduciary and the principal
Finder’s Fee
An amount paid to someone who introduces two parties that subsequently engage in a transaction. A Finder’s Fee is provided as compensation because without the “finder” introducing the parties, the deal would never have occurred. Laws regarding Finder’s Fees vary depending on the nature of the transaction for which the finder is compensated.
Force Majeure Clause
A common contractual term. Force majeure clauses release parties from their obligations under a contract to the extent that they are unable to perform them due to certain extreme circumstances outside their control.
Founder Agreement
An agreement to establish the rights and responsibilities of and between the founding members of a company. Typically addresses common issues for the management and operation of the company such as ownership, time commitments, equity issuances, founder exits and more.
G
Good Faith
An action is taken in Good Faith if it is objectively genuine, honest, and sincere without any intention to cause ill-will or otherwise deceive another person.
Goodwill
The intangible value that is created by the consistent and positive operations of a business. It is a reputational asset in which consumers associate positive emotions or thoughts to a business based on habitual service.
Guarantee
A promise to assume another party’s legal obligations in the event that those obligations cannot be met. For example, Guarantees are commonly requested by creditors in loan arrangements where the creditor suspects the debtor may not be able to repay the original loan. In these circumstances a creditor will require a third party to Guarantee the debt obligations of the original debtor prior to issuing the loan to the debtor.
I
Implied Terms
Contractual terms that a court will assume are intended to be included in a contract, even though they are not expressly stated. As a general rule, Canadian Courts do not like implying terms in a commercial contract and prefer to avoid rewriting an agreement between contracting parties. In very limited circumstances, however, a Court may imply certain words or obligations to “fill in the gaps” in a contract. Courts “imply” certain contractual terms because no contract can be totally comprehensive and complete. Even when prepared by a lawyer, no contract can cover every possible unknown future circumstance that might be relevant to the execution of the contract. When this happens, the Court emphasizes that it is not rewriting the contract, but simply articulating what the parties intended to include or ought to have included in their agreement.
Intellectual Property (IP)
Intangible property that has value. IP includes a company’s brand name, logos, slogans, domain names, new products, inventions, product designs, software, customer lists/data, and website content, among other things. IP rights are enforceable against third parties and include copyright, trademarks, patents, trade secrets, industrial designs, and moral rights.
Indemnity
A contractual exemption from liability for damages resulting from specified conduct. Often in contracts, one party can indemnify a party for damages that may result from the performance of certain actions. In this arrangement, one party agrees to pay for potential losses or damages caused by another party. A typical example is an insurance contract, in which the insurer or the indemnitor agrees to compensate the other party (the insured or the indemnitee) for any damages or losses in return for premiums paid by the insured to the insurer.
Independent Contractor Agreements
An agreement between an independent contractor (sometimes referred to as a “freelancer” or “consultant”) and a client. An Independent Contractor Agreement is legally distinct from an employment agreement and the rights and obligations of each party differs from that of an employee-employer relationship. Independent Contractor Agreements are not required to comply with employment standards legislation and typically provide the Independent Contractor with more flexibility and control over their work than they would have as an employee.
For more information on the difference between independent contractors and employees, check out this Goodlawyer blog post.
Learn more about drafting an Independent Contractor Agreement with a Goodlawyer here.
Industrial Design
Sometimes called “Design Patents.” These are a form of intellectual property (IP) that protects non-utilitarian, visual design features of a product. An application to register an Industrial Design must be filed within one year of the design being published, and registration provides for ten years of protection.
Learn more about registering an Industrial Design with a Goodlawyer here.
Insolvency
The inability of a person (including a corporation) to pay off their debts as they become due. Insolvency also occurs when the value of a person's debts exceeds the value of their assets. Insolvency does not always necessitate bankruptcy.
L
Licensing Agreements
An agreement between the owner of intellectual property (IP) and another party allowing the other party to use the IP for certain permitted purposes. Key provisions may include exclusivity, royalty rates, prohibitions on use, and the length of the license.
Learn more about getting a Licensing Agreement on Goodlawyer here.
M
Master Service Agreement (MSA)
MSAs are comprehensive service agreements that are customized to manage varied or indefinite service relationships between a service provider and a client. The MSA sets the overarching terms and conditions that apply to the service relationship between the service provider and the client and is supplemented by a separate, and more detailed, Statement of Work (SOW) which sets out the key terms and deliverables of a unique service project to be completed by the service provider. The MSA standardizes the responsibilities, limitations and expectations of the parties for all SOWs requested by the client.
Learn more about getting a Master Service Agreement with a Goodlawyer here.
Moral Rights
A type of intellectual property (IP) encompassing an author or creator’s right to the integrity of the work, to be associated with a work, and to remain anonymous. Moral rights cannot be assigned to a third party; they can only be waived.
N
Negligence
When a party fails to exercise the degree of care that a reasonable person would be expected to exercise in the situation, resulting in harm to another person or their property.
Non-Arm’s Length
See also, “Arm’s Length.” A business relationship or contractual arrangement between parties that share close, personal ties to one another (such as familial relations, common ownership, or common management). Commercial dealings between Non-Arm's Length parties may raise concerns of conflicts of interests.
Non-Disclosure Agreement (NDA)
Sometimes called “Confidentiality Agreements.” NDAs prohibit recipients of confidential information from using or disclosing such information in ways specified by the party that discloses the information. NDAs are commonly used as the first step in negotiating a commercial transaction between arm’s length parties.
Learn more about getting a Non-Disclosure Agreement with a Goodlawyer here.
O
Offer
An essential element for a valid contract. An Offer is a proposal to enter into an agreement on specific terms that can be readily agreed to.
Opinion Letter
A written document summarizing a lawyer’s analysis of a particular situation, providing a clear answer to a legal question that aligns with the current state of the law. They are used to check the lawfulness of an action being considered, to satisfy due diligence and contractual obligations during an investment, merger, or acquisition, or to get an official record of an answer to a specific legal question.
P
Partnership
A form of business organization where two or more persons carry on a business together with a view to profit. Profits and losses are shared between the partners, and, generally, one partner’s actions will bind the rest of the Partnership.
Partnership Agreement
An agreement between the parties in a partnership that defines the specific responsibilities and contributions of each partner. While partnerships can exist without a Partnership Agreement, these agreements mitigate disputes by providing a clear understanding of how the partnership will operate.
Learn more about creating a Partnership Agreement through Goodlawyer here.
Patent
A form of intellectual property (IP) protecting inventions, including art, a process, a machine, a manufacturing process, or a composition of matter. Patents also can protect any improvements to these types of existing inventions. Patents must be applied for and are assessed on a first-come, first-served basis. Once granted, Patents give the owner a 20-year monopolistic right to enjoy the profits associated with the product in exchange for full disclosure on how the invention works and how to replicate it.
For more information on the basics of patents, check out this Goodlawyer blog post.
Learn more about filing a Patent with the help of a Goodlawyer here.
Preferred Shares
A type of share that can be issued by a corporation. Shares are deemed to be “preferred” if they have some preferential right to the company’s common shares (e.g. in the form of voting rights, dividends, or return of capital if the company is dissolved). Rights associated with Preferred Shares can be tailored to attract particular investors (Venture Capitalists will require Preferred Shares in exchange for their investment capital). Preferred Shares often carry no voting rights but may have a guaranteed dividend or priority of return of capital upon dissolution of the corporation.
Privacy Policy
Under Canadian and international law, organizations that collect personal information must inform users about their privacy practices. A Privacy Policy allows a business to conform to these laws by explaining to users why personal information is being collected, what the organization will do with it, how it will be protected, and who it might get shared with. If an organization has a website or an app, it is probably collecting personal information from visitors and users and should implement a Privacy Policy.
For more information on the importance of Privacy Policy, check out this Goodlawyer blog post.
Learn more about creating a Privacy Policy on Goodlawyer here.
R
Return on investment (ROI)
A performance measure used to evaluate the efficiency or profitability of an investment.
Request for proposal (RFP)
A document that announces a project or engagement, describes its nature and parameters, and solicits bids from qualified contractors to complete it. Typically, the RFP describes the organization seeking qualified proposals, the scope of the project being undertaken (the tasks to be performed and the timeline for finishing the work), and the criteria for evaluating eligible entries. RPFs may also outline the bidding process and the key contractual terms applicable to the project or engagement.
S
Simple Agreements for Future Equity (SAFE Agreements)
An investment contract between an investor and a company that provides rights to the investor for a future ownership stake (equity) in the company without determining a specific price per share of the company at the time of the initial investment. The SAFE investor receives the promised equity interest in the company when the company completes a priced investment round at an agreed-upon discount to the price paid by the new investors in the priced round. SAFE agreements are often used where a company has enough traction and investment interest that it expects to raise money by completing a priced investment round in the near future (e.g. a seed round or Series A round) but the company needs an infusion of cash in the meantime.
Learn more funding your startup using a SAFE with the help of a Goodlawyer here.
Shareholders’ Agreement
An agreement to govern the relationship among and between a corporation and its shareholders. Shareholders’ Agreements are customized documents intended to outline the relative rights, duties, and decision-making powers of a corporation’s directors, officers and shareholders.
Learn more about creating a Shareholders’ Agreement with a Goodlawyer here.
Stare Decisis
See also “Common Law”. A latin term standing for the principle that courts are typically bound by “precedent”, or earlier court decisions.
Statement of Claim
A legal document submitted to a court system that has the effect of commencing a lawsuit. After filing, the opposing party is notified about the pending action, and may respond with either a statement of defence or counterclaim
Statement of Defence
A legal document that is submitted to a court system in response to a previously submitted statement of claim. A statement of defence will lay out why the party believes that the initial claim cannot succeed.
T
Terms of Service
Also referred to as “Terms of Use”, Terms of Service govern the relationship between a business and its customers. Terms of Service are often utilized for business models where it is logistically challenging or impractical for the service provider to enter into a contract with each of its individual users. To be effective and enforceable, Terms of Service must require that users unilaterally and positively agree to them as a condition precedent to engaging with or accessing the service provider's business or services.
Create your tailored Terms of Service with a Goodlawyer here.
Tort
A wrongful act or infringement of a right that causes harm or damage to a person or their property. The injured party can bring legal action against the party that caused the harm.
Trade Secrets
A type of intellectual property (IP) that encompasses valuable business information that can bring a competitive advantage to a company. This can include sales methods, customer profiles and lists, or components used to create software. Trade secrets cannot be protected by law and are instead protected exclusively by the policies and procedures of the company to which they relate (e.g. through the use of non-disclosure or confidentiality agreements).
Trademark
A type of intellectual property (IP) that makes a business brand distinct from others. This includes slogans, marks, pictures, logos, business names, or sounds. Trademark protection lasts for ten years upon registration and can be renewed indefinitely.
For more information on the basics of trademarks, check out this Goodlawyer blog post.
Register your Trademark with a Goodlawyer here.
W
Waiver
A legal agreement providing for the informed and voluntary relinquishment of certain legal rights. Waivers can be in the form of a standalone agreement, or may be included as a term in a contract. Waivers often are used to relinquish (i.e. waive) the right to sue a company or its stakeholders in the event that harm or injury occurs.
Get a tailored Liability Waiver with the help of a Goodlawyer here.
For more free legal resources to help you better understand your business’s legal needs, check out the Goodlawyer Resource Hub for blog posts, videos, podcasts, case studies and more.
