79. Start-Up Law with John Wires

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You're listening to the Entrepreneur Podcast from the Western Morrissette Institute for Entrepreneurship, powered by Ivey, if you are talking about startup law in Canada, John Wires is often at the top of that list. Wires is the CEO of Wires Law, a corporate commercial law firm that has delivered legal services to entrepreneurs, small and medium sized businesses across Canada for over a decade. While it can often be seen as an intimidating or boring topic, legal implications can often be the making or breaking of a business, especially when success is baked into the formula. In this episode, Wires speaks freely with Ivey faculty member Eric Janssen about the role lawyers play in decision making, how to calculate and mitigate legal risks, protecting intellectual property and the complications to consider when raising capital and diluting ownership when building a business.

Eric Janssen  
Hey, glad to have you here. Today's session is meant to be informative and useful for the NVP students who are about to submit their next deliverable. To do that, we've got a bunch of special guests this week. And so our guest today is John Wires, a startup- I'll say, John, you've done a great job of branding yourself as this, the startup lawyer, like you're the guy that I think of now when I think of startup law. (Thank you.)  You've done a good job there.

John Wires  
I mean, there's not a lot out there, no, there's, there's not a lot of lawyers who sort of focus in that space or that niche? So, yeah,

Eric Janssen  
Yeah, it's, it's a good one to fill. So couple, just like context setting for folks on the call. Couple areas that I've experienced the law as a founder. One, there's some initial- we're gonna get into the questions in a second, John, I'm just setting context for the folks here. I've encountered lawyers primarily in this, mainly in the startup phase. So structuring partnership agreements, putting together, like, how should we even organize this thing? Often use lawyers there for sort of minimal interactions. You just like, get the shareholders agreements done, and then you're done. Exiting a business, so selling a business; been through that process where lawyers are typically involved. So those are the probably the cleanest, too. And the most fun, right? Yeah, energy super high at the beginning of the forming, and the exit at the end, for sure. And then the middle stuff on the sales side, like contracting, so putting together contracts, reviewing agreements with big partners, those sorts of things. And then also the messiness of being sued, being caught up in, like class action lawsuits. I've been, I've been in the center of a bunch of those, so I've experienced it from, I think, a bunch of different perspectives, mostly John. I think of it like, at least for me, the in the lines of businesses that I was in my relationship with our lawyer. We actually had a full time lawyer at some point because it got so crazy, it didn't like make it wasn't going to make our business, but it really protected us from breaking the business. Is that? How do you how do you think about the law as it relates to like, the relationship you have with founders?

John Wires  
I think that's a great way to look at it. I mean, the the thing I always tell clients is, I view my job as helping you identify what the legal risks are for your business. And those legal risks for every business are going to be unique. They're going to be customized to whatever it is that business is doing, but it's the founder's job to make the decision about how they're going to navigate those legal risks, what they're going to do with them. And I think, you know, the thing that I've realized the most over the last number of years I've been doing what I'm doing is there's really two sets of two different types of entrepreneurs I see one is there's ones that go in totally blind, that have no concept of the law or how the law might impact their business. And sometimes those ones are the most successful because they don't actually appreciate the level of legal risk that they just accrued, or that they just took on, and it's something in the behind them, and if it never catches up with them, they can have a big success. But I think those are few and far between, because what you know, what often happens is they get to a stage where there's success, and usually there's nothing to work there's, you know, the stuff never, usually comes to a head until there's something to fight about. And when you see an element of success in a business, that's where you're going to start to realize that the legal risk that I didn't know that now has been put in front of me by a lawyer actually matters. And I think some of you know the ones that rip through and do well and have an exit and never appreciated the risk they exist. But I think more often than not, the naive ones get to a point where they go, Man, I wish somebody sat me down and explained that to me when I started this business. And then you get the other entrepreneurs who come in and they want it, they have a good understanding of a framework of the law, and they're inquisitorial with their lawyer about asking what, what should I be thinking about in the context of my business? And I think those are the entrepreneurs that are much more steady and methodical and concise in the way in which they run their business, and they think about these issues proactively. And I think a great example of that, if I could give you one real quick one, it's this idea of Uber when they first started rolling out, which was, I can guarantee you, in the background, there were lots of lawyers sitting there saying, hey, this business model might be illegal. We don't know if you're a taxi company or how you're going to be regulated, or what's going on. They would have gotten legal opinions. But there's somebody whose job it is, as a founder, to sit there and look at all that advice and say, Well, I'm comfortable taking the legal risks here and moving forward and blazing a trail where there, where there isn't one, and those ones, you know, the level of legal risk might have been assessed as being relatively high, but they took that risk and it paid off, and they managed the risk as it came at them. But not every business is Uber that has, you know, that level of uncertainty around how they would be regulated. A lot a lot of businesses are, let's call them plain Jane, where the level of legal risk is modest and you can make much more informed and easy decisions around that risk.

Eric Janssen  
Yeah, interesting. You remind me of, I think, a conversation that I had both with our lawyer and would have been with probably our accountant or our finance person at the time, and I think when I was young running the businesses, I think I would almost turn to them and like, here's the information. What should I do? And our lawyer was like, Look, I'm not, I'm I'm not here to tell you what's what you what you should do or not do. I'm going to point out the red flags. I'm going to point out some things that I'm concerned about. I'm going to give you the information, and then you make the decision. Is that how you that's how you think about it?

John Wires  
Yeah, I mean, it's, it's, there's a clear distinction between making, sometimes it's not as clear as you would hope, but between making a business decision and a legal decision. There's certainly, you know, lots of times a business will come to a lawyer and say, we want a legal opinion on whether A, B, C and D is is lawful, or whether we can or cannot do something. And most of the time, ironically, if you get to that stage, a lot of the time, the lawyer's answer is, I don't know. It could be. Could not be, because there's a lot of ambiguity in the law. And they'll do a good job at pointing out, you know what the relevant factors are and and whether there's a likelihood, what the likelihood is of something being unlawful or not within a regulation or doesn't fit within the ambit of the law. But, yeah, you're absolutely right. At the end of the day, the lawyer is not going to make that decision for you, and that's the decision of the of the founder. It's the lawyer's job to point out all the risks, and the more they point out, the more informed decision you can make going forward. But I think it's also important that, you know, founders have to be very careful that they don't fall into the trap. Lawyers like to joke behind the scenes that, you know, if we all listen to our lawyers, we'd all sit in a nice room and do and have no business ventures, because we would over-analyze the risk. So it's also important that founders don't over-analyze the risk and interpret something a lawyer says that means I can't do it. You know, there it just means, you know, there's likely is situations where you can't do something, like if it's criminally illegal or whatever. But if it's gotten to, if it's something around a business model like Uber's, you know, there it is important that you don't hear the lawyer as the No person. And if you make a decision to proceed with something that has an element of legal risk, the next step is to then say, how do we mitigate that risk? What are the steps we should be taking to cover ourselves and be proactive on this? And you know, in Uber's case, that might have been going and actually speaking with lawmakers and regulators and saying, we need some clarity here, because a lot of the times in these types of novel business ideas, the issue isn't necessarily that something's illegal, it's or or will become illegal. It's that they they at least want some legal clarity on whether it is or isn't, and that's only something that the legislators and the regulators can give you. So you know, the ones that proactively engage with regulators to put it in front of them, I think, also have. A better chance at success or not having a harsher tone from the regulators when it comes to it. And you know that the regulators get that too in lots of different situations, including in securities loss frameworks as well, where they've, you know, regulators in Ontario have put together what they call the sandbox, where, if you're not sure about something, you can go in and play in their sandbox and say, here's what we're trying to do. We want to be innovative in a specific area around raising money or doing something. And you can, you can approach them with it. And I think sometimes that's a good approach as well, to give you some element of certainty, and they at least better understand how you're going to be treated by regulators and what the legal risks are.

Eric Janssen  
John, how did you find yourself to be the founder law guy? How did you get here? Where were you when you were these folks' age, 20, 22 years old?

John Wires  
Yeah, good question. I mean, I, I always was really interested in tech. I was building websites for a long time before I was a lawyer, and it was just a world that I understood. So when I started practicing law, I was in I was a litigation lawyer, when I started, and I got to this stage about three years in, where I had a moment where I, you know, as a litigation lawyer in corporate commercial litigation, you're involved in the back end of these disputes where you're basically facilitating the destruction of a business, right? You're, you're helping people sue other. You know, a lot of co-founder and shareholder disputes, a lot of employment disputes that were sort of existential to a business where it's like employee number one and a big claim against the founders. And I got three years in and said to myself, I would much rather be involved in my career with helping protect these businesses from the get go, and forming them and getting them going, then acting on the back end in this long, slow, cumbersome litigation world where businesses are good, businesses are crumbling. Because, like I said at the beginning, you know, there's this irony that until something there's usually no legal disputes that arise inside a company and between founders and employees, etc, until there's something worth fighting over. And you know, it's easy for founders to go, well, I'll defer the legal work and shareholder agreement all this stuff to a later stage, because right now, I can't justify a big expense on legal when my business isn't worth anything, when I don't have anything here. But you know, the irony is that things move quick in a startup, and by the time you need to fall back on a contract, a shareholder agreement, or whatever, it's much harder to negotiate a contract once a legal issue arises, and once the legal issue does arise, you're going to wish that you had done something on day one. So there's this concept that there, once there's something worth fighting about, you'll find that there's more fight, and I found that, as you know, when I was practicing litigation for those first three years, I kept thinking to myself, man, it would be fun to get in front of these people before all this stuff happened, because you can see in many instances how a few clauses in a contract might not have resolved the dispute. You may still get the dispute, but at a minimum, dealing with some of these things up front help you put a framework around how that dispute will be resolved. So, for example, if you have a co-founder dispute and you didn't have a contract, maybe the contract said, you know, if one founder leaves or is terminated, there's a right or the ability to buy their shares back, or maybe there's a vesting provision in the contract that says, if they left or they're no longer involved, they don't own the full scope of their equity that they thought they owned, and there's a right to buy some of that equity back, things like that, that if it was, if everybody paused at the beginning and thought about what the business deal was between all the founders, could really save or mitigate the dispute from happening. So yeah, I was long story short, it was a litigation start, and then I quickly wanted to go into helping these types of businesses grow and protect themselves, rather than tearing them tearing them down. I didn't like that as a career path.

Eric Janssen  
That's cool, entrepreneurial about your career start off on a path, realize it was part of parts of it were for you, and then make a pivot and focus on helping the entrepreneurs. That's great. So now you've worked with many, you've literally written the book on it, worked with a lot of early stage companies. What are some of the most common legal mistakes that companies make in the early stages?

John Wires  
I'd say the two big ones that always stand out for me are, you see, you see a lot of times where founders will go and incorporate a company and then press pause and there's just a company that exists, but there was nothing done to formally structure the company. And by that, I mean, actually take a moment to issue shares and divide up the equity. So I'd say that's the biggest one, because when you incorporate a company in Canada, there actually is no, you know, there's no box to tick, and there's no nothing to do with the government or the regulators to say, I did that, I issued shares, and somebody actually owns this corporation. What you do when you incorporate is you specify who the directors are that are going to be in charge of managing the company. But there's no next step that as part of the government filing process that you take to divide up the equity. So I'd say, I can't tell you how many times I've had people come to me and say, Hey, we've got a corporation. I own 50% and my co-founder owns 50% and now we want to do A, B, C and D, or there's a dispute, or something's going on. And I say, Okay, well, give me the minute book that shows the ownership. And they go, we don't have that. I go, Well, if there were no shares issued, how do you say that you own 50% and the other person owns 50% I mean, that might be a verbal agreement that you had, but not documenting that, I'd say is the single greatest thing that leads to co-founder disputes and to the to the destruction of businesses. Because what happens when you fail to do that is when there is a dispute or something goes wrong. The first thing somebody said, The classic example in the world I work in, which is a lot of times it's software companies or tech startups. It's co-founder A says, Well, I developed all the software code. And co-founder B, maybe is a is a business development guy or a sales guy or something. And the one co-founder they get in a dispute, the one guy goes well and leads. Goes, Well, I'm leaving. And he there, if there's no share issuance and there's no shareholder agreement, there's nothing that's been documented to deal with, who actually owns the the main asset of this company, which is the code underlying the software they created. And I can't tell you how many times I've had two people or one person come to me and say, That's the situation. What do I do? And it's that situation where I go, Man, I wish that you guys issued the shares and entered a co-founder agreement, because these issues are very easy to address or to deal with in two lines in a contract that say both the founders are agreeing, when they start this business, that they're assigning any intellectual property they create in the context of the business to the corporation for it to own, rather than the person who actually developed the code. And in the software space, it's particularly problematic and profound because, you know, the copyright laws to the effect that it copyright vests in the creator of the work. And if that work was software code, then it's part, you know, the first owner is the individual, and if he didn't do anything to assign it to the company, then you've you've got a dispute. There's at least an argument on either side. Sometimes you can argue there was an implied assignment to to the company, but you have a dispute, and it's one party saying one thing, and one party saying the other. And if you know, the longer that you wait, let's say you fast forward three years, you could have a real a real problem where you've got an actual asset, a real piece of software, and a dispute over who owned it. So I'd say that's, to me, the single biggest, biggest one, issuing shares and entering into founder agreements.

Eric Janssen  
So I've used for, maybe not for the bigger companies, but for some of the smaller like consulting. I need to, like, stand up a company for some consulting work that I'm doing. I've used owner as a platform. And I've actually found myself when students are like, you know, hung up like, I don't know how to start a business. Like, well, what are you hung up on? Well, like, incorporating. I don't know what to do. Like, literally, there's a website to incorporate. So do you recommend people use owner to do that kind of thing?

John Wires  
It's an interesting question. This has been a top of mind for me for a couple of years. The process of incorporating a company is quite simple if you have a simple share structure. So if you want to have one class of common shares, or even a class of common shares and a class of non voting shares, you can go directly to the corporations Canada website and do it yourself, and press pause. And that's the that's the step that I just explained, where when you press pause, and then you don't go to the next stage, which is to issue the shares you can get into some trouble. Owner helps you incorporate the company, and they also will put in front of you documents to issue shares, as I understand it, I think they still do. And. To me, you know, I've always scratched my head at that one, because, to me, that's you're, you're sort of verging into, are they practicing law? Because you, you know, it's, it's, they make it seem like it's this really simple process that you don't need legal advice on. But there's a lot of stuff that in the background a lawyer could and should be advising you on when that whole process unfolds, because I think they also put in front of you a template shareholder agreement. And I think there's this concept that whatever the template is, I'm sure it's fair and reasonable, but what's fair and reasonable in the context of every company is different there, and not only that, but the business deal, you know, it's, it's this idea that, if it's a template agreement, it's like saying we're going to form our business relationship around the template that some company thought was fair and reasonable for everyone. But that's, you know, what I say should actually be happening is there should be a business deal reached that you then go and paper in an agreement, and those two things are vastly different. It's like trying to fit a square peg into a round hole, right you? And it's those companies are basically saying, we're going to make everybody go become a round hole. So to me, they may work very well for certain situations. But for dealing with things like, you know, more complex planning around vesting relationships, share share buybacks, what happens when a founder leaves? Maybe there's nuance around intellectual property ownership. Sometimes, you know, I see those agreements. They all have, you know, standard, I don't know about owner situation, but a lot of template agreements you'll see have blanket clauses on things like non solicits and things like non competes, which might seem like, Yeah, everybody should be willing to agree to that. But those are also situations that can have a lot of nuance to them. You know, what? If one of the founders is an employee at a company, or what if he has multiple companies and he's got a guy working for him at both entities, you sign those contracts and all of a sudden you might be in breach of them at the time you sign them. So I don't think there is a one size fits all and that everybody should just go use the same template. That may very well be the case that they work well in certain situations, but at a minimum, I'd say it's prudent for people who use those services to have a lawyer explain the nuance and explain in their situation why that agreement may work and why it may not work.

Eric Janssen  
So for the folks that are listening in right now. They are the designated legal experts on their team. I say that loosely because I'm assuming most don't have a legal background. Maybe some are interested in the law. Maybe some are doing dual degree. So they there may be some level of experience, but they're not they're not lawyers, if you, if you're them, and by December, they need to put together a version of a business plan. They're going to be pitching to some judges. They're going to be sitting with me and other faculty in like, a due diligence meeting. What do you think are the critical things they need to consider for this project. I think we covered a couple. One, one that you mentioned already was sort of company structure and partnership agreement, like, who's going to who's going to do? What? What does that look like? We haven't yet talked about IP. Those were the two that were kind of top of mind for me. But from your perspective, what are the, what's the bucket of things that they should be considering for this project?

John Wires  
Yeah, I mean, on the IP side, I think that's relevant for almost every business. But the question is, what it what is it? How can the law protect what exactly it is that I'm building for every company, there's going to be some element of protection. For example, trademarks in either the name of the company or some brand that you're undertaking. Lawyers can be really effective at helping you understand whether there's confusingly similar names that are out there in the marketplace. Because one of the problems I've seen that I've seen it once or twice happening with companies that have come to me where they say, Hey, we just got this notice from another, from enough from a law firm that says we can't use the name that we've been using for about a year. We spent all this money and time branding and putting things together, and we got this demand letter saying we can't use it. So pre planning around the name can be important, and that's that's becoming an increasingly complex problem, because as as companies become global from the start, like E, commerce, businesses, software companies, etc, you might have to consider naming issues in other jurisdictions that you want to sell into, including the United States or Europe or whatever so on. IP, the question is, what exactly is it that I that is the main asset that I have that I'm looking to protect? If it's. Software code, then your business plan should have a clear idea of how to protect that software code. You know it could be as simple as saying we're going to make sure that we've got assignments of IP from all the people creating it, whether it be founders or employees or consultants. If software can be a tricky one for a number of different reasons, but the main reason is, at least in Ontario, there is a big case called del Rina, which is a court of appeal decision that basically said, you know, if one person created a piece of software and it has a certain functionality, the copyright protects the source code, the software code, but it it only it doesn't protect the functionality. It doesn't mean that that same person or somebody else can't go and take the same business idea and develop another piece of code that doesn't copy what was previously created, but just does the same thing or has a similar functionality. So if it's a software business or something in that realm of copyright, the next question is, on the IP side, what can I do to further protect and that might be things like trade secrets and confidentiality agreements around what they can and cannot do, and perhaps non competes and non solicits around starting a competing entity. Non competes themselves are also becoming increasingly complex. In Ontario, they've effectively been for employees very, very difficult to enforce. There's amendments to the Employment Standards Act that says they're not enforceable unless it's somebody who is a an executive, an executive at the company, which is, of itself, a bit of a vague concept. So, yeah, I would say IP is a big one if it's something that's patentable, you know, looking at whether it's capable of being patented. So you go through the four big ones on IP, which are copyright, trademarks, patents and trade secrets or confidentiality agreements. And I think you go through that list and you say, you can do a chicken, or you can do an egg, you can say, of those four which apply to me, can I go protect anything? Or you can do the reverse, which is what asset? What's the most crucial aspect of my business, that if somebody else took it or started using it or competed with me, that I wish they didn't do it. And you can say, is there a way with using one of those four items to protect aside from IP, another big item, I would say, for companies, for entrepreneurs to consider at this stage would be employment and consulting agreements. Because if you're if the foundation of a business is to go and engage consultants, that IP issue becomes real live real quick, which is, did your did your contract? I see that so many times in the software space, where you know, you go and engage a contractor or a agency or somebody to build out an application, but the application was never assigned. The IP was never assigned. And even in that context, everybody assumes that just some simple IP assignment clause from a contractor works, but it's a lot of the times. It's getting increasingly complex in the software space to figure out what exactly it is that the people building things for you are giving to you, is it the entirety of the code? Because a lot of times, people are drawing on Open Source Repositories. They're doing things where it's not clear that they actually own every single piece of code that they give you. So those agreements are, you know, have some nuance to them as well. But, yeah, I would say anybody putting together a business plan that that's going to get judged on it by people that are, you know, investors, or somebody that's going to they're going to come from it from the mindset of, if I give you money to go and build out this business, how do I know that my money is protected? So other things you're gonna have to consider in your business plan are, what am I selling? If there's investors involved, am I selling a specific class or type of share? I think this is something sometimes founders overlook when they go engage in negotiations on term sheets. It's what type of equity Am I giving up? Is it preference shares, common shares? Is it certain voting rights and being proactive and being thoughtful on what you're willing to give up in terms of control, if you're if you're going to engage with it with an investor, because if your business plan includes raising money, you know, there are smart investors out there, and there are ones that will give you a check and say, issue me a share, and I'm not too concerned about what else is going on. And sophisticated investors will be very No. Do I say it demanding in the in what they look for in their investment and a lot of times it boils down to how much control they want to take in your business and and it's a, you know, one of the things that I always tell my clients when they're negotiating investment transactions is the two biggest items are control and ownership. And those are very different things, because somebody can have a minority ownership stake in a business, an investor could come to you and say, I'll give you a check, and I want to take 5% of the of the company, but they might then proceed to negotiate a shareholder agreement with you that says, oh, and we want one of two board seats, which effectively means that they have a co management right over the business, even though they only own 5% so understanding in your business plan what level of control you're willing to give up to investors is also crucial, and planning out future equity raises and around dilution and how that will impact the element of control, I'd say those are our two big ones.

Eric Janssen  
I've seen these stories come up. It's just, I think my feed nowadays populated. There's, there's a few people that are talking about what happens when a business is sold, and how founders who sell their business for $100,000,000, or employee number one at a company that sells for $50,000,000 thinks that they have equity, but by the time it all filters down, and everyone gets paid out and they get taxed on it, it's like, you know, employee number one walks away with 50 grand after $50,000,000 exit. I'm sure. I'm assuming you've seen that play out before.

John Wires  
Yeah, absolutely. I mean, the issue of dilution is one that needs to be carefully considered for a business plan like at some stage, at what stage are you going to raise equity has a big impact on the dilution of the founders and the early stage employees. So yeah, planning around that, I think, is crucial. 

Eric Janssen  
Couple things that, I'm going off script a little bit, but things that I was thinking that might be relevant for folks here. And you may not have insight on this, but a lot of them are B2C, businesses like direct to consumer. And I'm wondering, are there any considerations I'm thinking like, what are the holes that I'm going to try to poke in them as they come up? So, for example, someone who's launching like a new skincare brand as an example, or a new consumer appliance that's going to be used inside the house. Any considerations on those direct to consumer businesses for what they should think about with respect to, like, terms and conditions, or like, you know, those warnings that come out in the sheets or T's and C's that should be on the website.

John Wires  
Yeah, I have to be careful here, because it's not actually a space I advise on. But I can tell you that for skin, for things like cosmetics and skincare products, they are heavily regulated, and there are rules and regulations Health Canada publishes. So if you're selling in the Canadian marketplace, you're gonna have to be very careful about considering what the approval process looks like, or what you can and cannot do from the the eyes of Health Canada and what's what's hard about brand businesses like that is if you're selling into each jurisdiction, you're going to have to do that same consideration in every place you're going to go sell into. So, you know, there's this mindset of, well, I can just get a formula, put it together, package and label it and ship it, but a lot of times you have to consider the laws of other jurisdictions. Another consideration in that context is packaging and labeling. Because we have French and English laws, there's Quebec to consider, and there's certain things that need to be on packaging, which needs to be very carefully considered. It's not a space I advise on, but I know there are lawyers that are out there and advisors that are out there that build whole businesses around that whole what needs to be on packaging, and labeling for home appliance stuff, for those types of businesses, it's a similar calculation, which is, you know, there's safety certifications, and there's CSE, and there's all these other safety considerations. Product liability is, you know, it's a you have to be very careful selling consumer products, because, you know, ultimately, whether the product was lawfully being sold in Canada or not can be irrelevant on the issue. When it comes to liability, like if there's a product that ends up being unsafe, there are provisions of consumer, consumer protection and product safety legislation that can make pretty much everybody in the in the in the supply chain potentially liable for that product or the damage that it caused. You know, there's a whole bar and practice area around product liability and class actions in particular, and, yeah, it's, it's a space to be very careful about, because if you didn't, if you know, if, if you were selling a product, that turns out to be. Be, not being lawfully sold. That could be, you know, that's the end of the business. And it could be, it could be the case that it caused real damage and real harm, that there's not only liability for the company that you're operating, but in some situations, the bigger risk of individual and personal liability if there was, you know, real mismanagement and gross negligence involved.

Eric Janssen  
Even that insights good. So folks who are listening in your if your product is direct to consumer appliances, skin care, anything you're putting on or in your body, expect to get asked questions about that, right? And I think where we often see issues John is people will be like, we're going to launch in Canada, and the next year it's in the States, and then we're gonna go global in three years, and we're gonna get to 25 million in revenue. And then someone who knows a thing or two is, like, Wait, okay, so, like, you're gonna launch in the states in 12 months. What's the process to get skincare product approved in the States? Right? Like, yeah, how long does that take? Actually, it's 24 months, and it costs you half a million dollars. And, like, you just, you get hung up on that stuff in a page. So cool, good to call out. Like, for anybody that's doing something direct to consumer, you gotta the legal person needs to understand those things and be able to address them in the Q&A.

John Wires  
For sure. The one that I see- there was an era, there was a time where, the Alibaba and the Chinese e-commerce market was so big that there were so many people that were looking at ways to take products being manufactured over there and rebrand them, relabel them, and sell them into a different market, or maybe even modify them and sell them here. And everybody has this assumption that because it's being sold somewhere else that it must be lawfully being able to be or capable of being sold into Canada, and that's a bad assumption.

Eric Janssen  
Okay, good flag. Good flag. What about so for the B2B companies? How should they be thinking about their agreements? You know, if you're selling a big B2B contract, my, my tendency now nowadays, is like, well, we just mock something up on ChatGPT, put it as the appendix, and we're done anything that we wanted to flag for companies that are selling B2B and will need to enter into these big partnership type of agreements, or big, you know, big clients that are worth six figures, those sorts of things.

John Wires  
Yeah, so I mean, in the when you're doing B2C, there's less room to be protective in the language around contracts you enter with consumers, because there's consumer protection legislation that gives them sort of a baseline level protection, like in terms of limiting your liability or seeking different causes like that. When it comes to B2B, there's much more opportunity for you to be very protective in your contracts, to protect your business. And the question you'll face is, how protective do I want to be in relation to how much friction I get in the sales process, and there's always this dichotomy between, are we going to be are we going to go with a with a template form of agreement to all our customers, our B2B customers, that really tries to protect us, limitation of liability clauses, indemnity clauses and all this stuff? Or are we going to go, No, who like, let's, let's go somewhere on the lower end of what's of what's reasonable in terms of protecting us, and just try to close the deal. And this is the ongoing dichotomy between lawyers and sales people. Sales people just want the ability to go, like, "give me something one page, super simple, and move on," and the lawyers are going, woah, woah, woah, we could actually do a lot here where we're protective. But what ends up happening is, you know, it's actually kind of interesting always to watch it with my clients, is sometimes you'll put together the most protective contract you can think of. It's a great contract; the company's so secure, and can go into these contracts and, you know, it pushes a lot of the liability and the risk off onto somebody else. And you'll see situations every once in a while where somebody just takes and signs and moves on, right? But if I can guarantee you, if the other side has a lawyer reviewing it, they're going to poke back. You get into a protracted negotiation. There's red lines, everybody's trying to protect their own client. and it becomes a cumbersome sales process. So often, I think the trend now, especially in the software space, is to present something that doesn't dramatically slow the sales process down, and what you see a lot of companies trying to do, and there's, there's risks involved in doing it, and you know, it's not legal advice. You get into it on individual client circumstances, but a lot of times now you see a simple one page document that is sets out the general business terms of a contract that is signed off on by an executive of the customer, the B2B customer. And then you try to incorporate legal terms by reference. So if it's software, like enterprise software, you do what Microsoft does, and you know, they have a really clean and simple click through process to get a new email account, but you tick the box that said, I agreed to all this other legalese. You see that happening a lot now in the B2B space, especially in the software space, where there's an enterprise customer agreement, and then it sets out the business terms. And then there's a more fully drawn out terms upon what you do business in a in an online it can be linked, hyperlinked online, or in some other document that you provide them. And you know, the objective is to be protective in that document, but also try to be reasonable, so that if a lawyer does review it, they don't want to get into some protracted negotiation on your own terms of service that are on your website somewhere.

Eric Janssen  
Yeah, oh, man, you just brought me back to, you know, negotiations with strategic partners, global strategic partners, and you're like, the two leads on it, right? I'm the sales person, and there's the person on their end that are like, "Great, pricing: good. Who's doing what? Fantastic." And then it's sometimes months right, months of red lines back and forth between and the behind the scenes where, like, I'm talking to my lawyer about the game plan, and what is this, you'd think, like, one sentence stricken out. You're like, well, it's probably not a big deal. And they're like, no, like, that is, that is the ball game. Like, that sentence is ball game.

John Wires  
It is amazing. You know, I do this all. It's, it's something, it's that the big portion of my business with my clients is doing that. And, you know, you can just see the sales guys rolling their eyes in the background, going, oh my goodness, just get this thing done. But, you know, there's a reason why this stuff is fought over, and it is because it can matter. And if something goes wrong, or there's a potential claim, or there's an issue with software, there's a data breach, or whatever, what is in the contract matters, and it can matter quite dramatically into, you know, some of it can be existential to a business, right? So there is a reason why people fight over it.

Eric Janssen  
I want to, I want to leave a bunch of time for potential questions, John, so we'll, we're gonna get there in a couple minutes here. So folks, if you've got questions, these are the legal folks, if you've got questions about your specific business, the deliverable coming up, things that you want to know about to protect your IP or your team, or you give you a couple minutes to think about those questions. So that's coming. One thing we didn't talk about was we touched on it a little bit I guess, raising money. You talked about the two things that you should care about, ownership and control. This is a little bit ahead of the game right now, these most folks on the call are, this is mostly conceptual. This is an idea that exists mainly on paper. But fast forward to the end of the semester. Sometimes they get really excited about the idea. They'll be pitching a panel of judges. But from time to time, myself included, I get excited about an idea, and I write a check to some of these students to, like, encourage them to go start these businesses. So anything they should be thinking about as it relates, to fast forward a couple months, and they might actually raise money for this thing?

John Wires  
For sure. I mean, the single biggest thing is making sure you know who you're legally allowed to raise money from there can be some nuance there too. You know, the general starting point for raising money is you need a prospectus, which is a very complicated disclosure document, or long and long winded disclosure document, and there are then prospectus exemptions, where you can go and issue shares to specified groups of people that our regulators have said, for various reasons, we're going to let you go and do it without the level of disclosure that would be met by a prospectus. Those groups, there's important definitions involved, but, you know, friends and family, accredited investors and institutional investors. So if you're talking about raising money from accredited investors, obviously there's no important part of making sure that these people are actually accredited investors and that you can raise money from them, they're going to, you know, there's this, there's this funny concept, which is the more sophisticated an investor you get with more money, the smarter they're going to be in terms of what they ask for when they're making an investment in your company, and you're going to negotiate as a business person on the level of equity ownership. But what usually gets complicated when, when the checks being written with a lead investor making a sizeable investment is what is the level of control they get? And they usually, you know, it's some of these investors. Some investors are getting incredibly well-informed on ways in which they can gain little bits of leverage and control inside a company on everything from putting board and management rights into agreement, to having rights that are not otherwise granted by statute in the investment contracts, including the ability to come in and audit the business, the ability to look at records internally, to have the same level of of access to the business as if they were a director of the company. And they do this to be protective of their investment and to quash their concerns over what a business is actually doing. But ultimately, all these things boil down to "what level of control and management rights are you going to be willing to give up?" And you know, some investors will come and say, "We don't care. You know, we're going to take a minority position, we don't need a board seat, we don't need any information rights or other things." And you can, they're making the investment, and they trust you to go run the business as management. In other situations, depending on the stage of investment and how big the check is, they come and they say to you, the essence of the deal is that if things start going sour and we have concerns, we're going to start exercising all of these elements of control that we negotiate in the contract, including maybe the right to appoint or nominate a board member, or maybe more than one board member, maybe to have oversight on at the board maybe, you know, there's options to exercise additional investments which push them into a hurdle where they gain control of a company. There's, there's all sorts of of different things in that regard. But yeah, this issue of control vs. ownership is so fundamental for a founder to understand when they're raising money. One of the counter-examples that I given in the book I wrote was, you know, when Mark Zuckerberg and Facebook were raising money, and he had concerns about dilution in the early days, about how he would lose voting control of his business as his equity got diluted away below certain thresholds, is he came up with extra voting rights attaching to his shares. So you know, if the concept was that every common shareholder had one vote per share that they held. He said, Well, no, I want. I don't know what the I can't remember the exact number, but he would say, Well, I want, I get 10 votes for every share that I hold. So even though he held less equity as he got diluted over time, he had mechanisms to counter the element of control. So it's an issue not only that founders should think about in their own personal circumstances, but also as investors come on board and you get diluted the other on the element of control, it's not only important to consider in the context of an investment, but it's also important to consider it in the context of your co-founder relationship, because you know, if you don't have a shareholder agreement, and the shares are issued 50-50, one of the biggest problems you always see is there's two members of the board, and they have equal rights in terms of making board decisions, and if there is no decision, it's stalemate, you can't do anything. If there's provisions in a founder agreement that allow for, let's say, a founder leaves after a dispute, if you can buy back some or all, or a portion of the equity from that founder. It may be that the element of control changes, and you actually have, you know, maybe that you can out-vote that person, remove them from the board, and you're in control. But if you didn't have an agreement to that effect, the risk you face is permanent stalemate or deadlock in that business, because you didn't deal with the element of control when there was a dispute. So the founders just sit there and go, "Well, neither one of us can do anything because I disagree with you and you disagree with me on the direction of this company." So you know, that's why those issues can also be dealt with in the founder or shareholder agreement. So, yeah, I guess my point that I'm making is, I can't reiterate enough how important that element of control really is.

Eric Janssen  
Yeah, you wrote a book on this, John, called The Law for Founders. Think it's $11, digital copy (That's right). Maybe just tease us what, what is, what is in the book? What, what does it cover? When would it make sense for someone to check this out?

John Wires  
Yeah, I mean, I try to be pretty high level, encompassing on a whole host of different issues. It's kind of tailored on my experiences advising software and e-commerce companies, but I think it would apply to the vast range of most founders and most companies and deals with, it's intended to highlight all the issues that a founder will wish they knew or thought about from a legal perspective when they started a business, when they when they're four or five, six years. In, and they go, Man, I wish I knew about that as an issue. So everything from from naming the business to incorporating the business, and things you should think about in terms of share classes, I have a chapter on on negotiating founder agreements and and shareholder transactions with with investors, and the things that you should be thinking about in those negotiations. And then I have some notes at the end too, on on IP, and then also on, on actually exiting the business, and things you should should be thinking about when you're actually going to sell your company. Awesome.

Eric Janssen  
I am getting a couple questions here. Some of them want to remain anonymous, so I'm going to try to my best to paraphrase the questions. But sure, after I asked this one, want to open it up. So I guess this is good context, because on this deliverable, we kind of limit people in terms of how much space they can allocate in the report to the legal side of things. So candidly, in this, in the in the one that's due, I think tomorrow, Saturday or Sunday, there's not a lot of space for someone to get really detailed, but typically, what I would I'm partly answering the question for this person, if, if the legal elements become a critical part of your business plan, then at some point you need to allocate more space to the things that matter for your business. So in the beginning, as we're trying to get everybody to submit a deliverable, they're all going to look roughly similar, with the same amount of space allocated to every single one of them. But I guess part one of the question John, like, when, when someone's business really depends on IP protection? I would assume that in their pitch and in their investments of how they're like allocating capital and starting up, they're going to spend a lot of money on someone like you, or on a lot of space and time talking about their IP protection? Is that, right? 

John Wires  
Yeah, I mean, I don't know that it needs to be a lot of if you're putting together a business plan. I mean, I don't write business plans for a living, but I wouldn't think it needs to be certainly, on the trademark stuff, it could be as simple as we're going to, you know, part of our businesses is a branding component, and we're going to go and lock down the rights and the branding to use these marks in the following jurisdictions. And, you know, one of the examples I gave in the book of where you need some foresight on this topic is you can go and register a trademark in Canada. You lock it down. Everything's great. You start selling your product. And then you go, "Okay, it's time to expand to the European Union or somewhere else," and you want to go and sell. And then you find out that there actually is a competing mark or competing brand or something in that marketplace that precludes you from selling your product in that space, or that presents a problem or some uncertainty as to whether you could so, you know, maybe you want to have some foresight in your business plan around what are the jurisdictions that are going to be crucial that we know we can sell into, and are we going to go and look up and do some searching in those places before we finally settle on the brand, on what this what the name or the brand of the Business is going to be, because I can guarantee you get to that stage, you get you have a really big business problem. If you make the assessment, or some lawyer tells you, yeah, you can do it in Canada, but if you sell into the US market, you're probably going to get a cease and desist letter on on that name that you've chosen.

Eric Janssen  
Yeah, so I think that answers another question, which is like, in part, part two. Well, for now, I think you can say we're like, we're looking into we're aware that these are issues. We don't know exactly how we're going to address them yet, but we're aware that this is something that we need to look into more in the future. So I think, to answer this person's question, this is, when it comes to IP, about our platform and the code specifically, is it, is it okay to say it's something that we're still figuring it out? Because depending on our strategy and the direction the regulations, like, I just can't say enough about it in this deliverable, and I think that's okay to say we've identified there's we're making, for example, a food product or an appliance or skincare. I think what we want to say is, like we've done enough homework to know that these are the things that we need to care about. And I'm not going to solve for all of them in my one page limit, but we're looking into all these things that we know to be important. I think that's what's important at this stage. Yeah.

John Wires  
And maybe, if it's a skincare product like you're looking into, is there a way using confidentiality agreements and trade secrets to protect the formula, or are there places where, if we sell this product, we have to disclose the formula to regulators? And you know, it's it becomes a problem for us? Like, yeah, I think issue spotting on the legal side is important. Maybe you can't solve every problem in a business plan, but no identifying that it's an issue that you want to address in the future. I think it's pretty important thing to do.

Eric Janssen  
There's this platform that I shared with the class before called, it's called MeanVC. It's a GPT, just in ChatGPT. And so you load your business it says, basically, you click on it, it says, pitch me. And so you can give them a one-pager or a ten-pager or whatever, your pitch deck, and it just tears your business apart. Doesn't matter how good it is, just tears it apart. You should create a you should create a law GPT, John, like, this is not legal advice, but like, just tell me all the issues that I might potentially have with this business.

John Wires  
You know, when you go to law school, the exams that you write a lot of times are issue spotting. It's they give you a fact pattern, and then they say, you know, the essence of the answer is supposed to be, did you spot all the legal issues that you should have addressed from the fact pattern? And I think that's sort of what you're doing in a business plan, if you're writing a legal section of it, which is, here's the fact pattern, here's the product, the service, or whatever it is that we want. Is that we want to do. Let's sit down for a moment and just think about what are all the legal what areas of the law apply to this most importantly, apply to this business, and it's it's for sure, going to be different for every business.

Eric Janssen  
You feel free, if anybody has a question to put up your hand. Now we've started a pattern. So people are asking me questions privately, but if you have another question publicly you want to ask, please just put up your hand virtually. One that's kind of off script, but I think it's interesting for people that want to get into this type of thing. John, where? Where do you I'm assuming you start by getting a law degree, but then what's the path to actually getting it? Do you? Do you own your own Are you an entrepreneur? You own your own business? Do you work for bigger firm? What's, what's the path to actually get

John Wires  
into this? Yeah, for me, I started my own practice in 2013 after working in litigation for a few years. The path, yeah, I mean, it's law school, and, you know, in terms of, in terms of getting out there and marketing, I've told other lawyers, you know, one of the best things to do for me was to try to pick a niche within your, your your, your field. For me, it's corporate law and my niche, I really went after software as a service and E commerce businesses. And for me, that was very profitable because there weren't a lot, you know, lawyers, we have this reputation of being Luddites who don't understand tech and software and all that stuff. So for, you know, for senior lawyers, that software was all new to them, for that from when they were trained all the way to the retirement and for me, it was a bit unique, because I could step in and say, I get the subject matter of my clients problem, like, I understand how they build these things and what they're doing in the background. So yeah, I think for if somebody's interested in becoming a lawyer, it's important to there's so many different areas of law, criminal law, property law, there's so many different things. It's important to really narrow down what it is you're you're interested in, and then go pick a niche and focus on it,

Eric Janssen  
not seeing any questions virtually. So I'm going to ask maybe the final one, unless other questions pop up. Any final advice that you give to these folks who are just at the very beginning of this journey, some are doing this for the sake of a project, and once the project's done, they'll never think about it again. Some are doing it as the first step to starting a real business. So any advice that you give them could be broadly or specifically as it relates to the law. 

John Wires  
Yeah I mean, I'll say it half jokingly, but you know, I alluded to it at the beginning of the call, which is, don't let your lawyer become the No person, work with a lawyer who will help you solve the problems that you have and advise you on the risks. And don't forget that it's your job to calculate the risk, be well informed on them, and then go make the decisions and grow the business and have fun doing it. I think that's probably my single best piece of advice I could give in terms of working with lawyers, because it can be frustrating. I think for true entrepreneurs to work with lawyers, because their mentalities on these things are different. The lawyer wants to be very cautious in pointing out all the different ways in which the business could fail because of a legal risk. And, you know, true entrepreneurs make a decision on those legal risks, on the knowledge they have, and move forward with the plan.

Eric Janssen  
I think John that was the switch for me in improving my relationship with our lawyer, it went from like, oh, you know, I'm either I'm in trouble and I'm like, need to deal with this thing, which was a bummer, or I'm trying to get this contract done, and I just heard back from the legal team on the other side, and like, ugh. Like, just help me get this done. Don't, like, I don't need a three hour call to go through all the details, but change, when I thought about it, like their role isn't to tell me what to do. Their role is to help me understand the risks and to present the information. And then I once I have the information and I'm well informed, then I get to make a decision, what level of the risk Am I comfortable? With, and I found, like, I don't know why, if that was just like a mental block, but that actually changed the way that I worked with our lawyer.

John Wires  
It makes sense. I mean, for me, there's a lot of times where I will, I'll flat, you know, when we're reviewing a contract, I'll flag stuff and say, like, this is a deal breaker for you. Like, I know enough about your business that if you sign a contract and it says that, you know, that's not a risk you should reasonably be willing to take within the realm of your business. But you know, then I'll try to flag all the other stuff where you go if you want to make concessions, make them on these points. Because, you know, in terms of legal risk to you, yeah, maybe there's some legal risk there, but I think you can mitigate them, and you can manage them, as long as you accept and understand what those risks are.

Eric Janssen  
Awesome. Awesome, man. Well, I appreciate we're at, we're at one hour here, one hour and one minute. I appreciate you making time for these folks, hopefully they left with some info that's going to be helpful in this deliverable, and certainly for the final. I think the big thing is if at this stage, flag the things that may be risks for your business, because you don't have a lot of space to allocate to actually fixing them. But for your final then you get a chance to elaborate and allocate more space and time to the things that you might have investors or advisors point out as issues, so we expect to see much more detail on it in the final and hopefully John's advice and feedback and maybe the law for founders book will help you flag some of those things.

John Wires  
Yeah, it's exciting that there's a group of university students that want to pursue entrepreneurship, and the future of our country is going to be built on people who want to be entrepreneurial. So I'm excited for for the fact that we're training people in university to pursue this and think through these issues proactively, which is awesome. So I'm glad to be here.

Eric Janssen  
Last thing, John, just so that I can control your email volume. When I started to work for startups or start my own businesses, are my lawyer became just kind of like a was it like a family friend, until I evolved into someone that specialized in this. So for these people, if they go work in, if they go work in a startup and they're reviewing equity agreements or they start their own businesses, would you be a potential resource for them to review an equity agreement or to help them structure a company, things like that?

John Wires  
Yeah, for sure. Subject to availability, these days, I'm quite backlogged, but yeah, I'm always, you know, I've got to the stage of my career where I'm at least in a position to to be picky and choosy, and if it's somebody from Ivey starting a business, I'm sure, I'm in a position to help.

Eric Janssen  
Cool. Awesome man. Well, we appreciate you today. Thank you so much for taking some time on a Friday afternoon. Have a good one, everybody.

John Wires  
Awesome. Have a great weekend, everyone.

Introduction/Outro  
The Entrepreneur Podcast is sponsored by QuantumShift 2008 alum and founder of Closing the Gap Healthcare Group, Dr. Connie Clerici. To ensure you never miss an episode, subscribe to the show on your favorite podcast player or visit entrepreneurship.uwo.ca/podcast. Thank you so much for listening, until next time.