Startup legal readiness, for Canadian founders
Legal readiness is whether your company can prove it owns what it sells, that its shares are accounted for, and that the people who built it signed something. Investors check it in the first week of diligence. Most of it costs very little to put in place before you raise, and a great deal to fix after.
There are ten things a Canadian company gets checked on. Six of them work differently here than in the United States, which matters because most of the guidance a founder finds online was written for Delaware. The tool below scores you against the ones that apply to your stage.
Startup Legal Readiness Score
Ten questions about how your company is actually put together. You get a score, a breakdown by area, and the specific documents you are missing.
10 questions, about 3 minutes. No account, no email required.
Built for Canadian companies, with Ontario and federal rules in mind. Readiness is a profile, not a pass or a fail.
The ten areas, and what actually goes wrong
Where you are incorporated
A Canadian-controlled private corporation can claim a refundable SR&ED credit of 35% on up to $3M of qualified spending a year, plus the lifetime capital gains exemption. Incorporating in Delaware by default gives both up.
How many founders hold shares
Not scored on its own. It decides which of the items below apply to you, and an even split with no deadlock mechanism is its own problem.
A signed founder agreement
In Canada this is usually a unanimous shareholder agreement, a statutory instrument with no Delaware equivalent. Without vesting, a co-founder who leaves at month eight keeps their full stake.
IP assigned to the company
Canada has no work made for hire doctrine. Assigning copyright does not waive moral rights, and those have to be waived expressly. Most US templates have no waiver clause at all.
Contractor agreements
An independent contractor owns what they create unless they signed it over. Paying the invoice does not transfer it. This is the most common finding in a pre-seed diligence review.
Whether you are raising
Decides whether securities questions apply. Money already taken without documentation is a live claim on the cap table.
A SAFE or term sheet built for Canada
The YC post-money SAFE does not address Canadian prospectus exemptions under NI 45-106, and enough US investors on the cap table can cost you Canadian-controlled status.
What customer data you collect
PIPEDA has no small business exemption and no revenue threshold. Quebec Law 25 reaches any company with Quebec users and carries a private right of action. CASL requires consent before the message, not an unsubscribe after it.
Employment agreements
After Waksdale v Swegon, a single non-compliant sentence voids the entire termination clause, and severability does not save it. Non-competes signed on or after 25 October 2021 are void in Ontario.
A privacy policy and terms
Lowest legal risk, highest visibility. A policy copied from a US company promises rights you do not honour, which turns a compliance gap into a misrepresentation.
Six places US advice gets a Canadian founder into trouble
These are not edge cases. They are the default outcome of following the most widely read startup legal guidance on the internet.
- 1
No work made for hire
The doctrine does not exist in Canadian law. Authorship stays with the person who created the work even where the employer holds ownership, so assignment language written around work for hire may not do what it appears to.
- 2
Moral rights survive assignment
Assigning the copyright does not waive moral rights. They apply to every kind of work in Canada, not only visual art, and they have to be waived expressly. Most US-derived templates have no waiver clause.
- 3
No section 83(b) election
US guidance tells founders to file an 83(b) within 30 days of a restricted stock grant. There is no Canadian equivalent. Canadian founder equity is normally structured as shares bought at nominal value at incorporation with a reverse vesting repurchase right.
- 4
Non-competes are void in Ontario
For agreements entered into on or after 25 October 2021, with narrow exceptions for a sale of business and a defined set of C-suite roles. US templates include them as standard.
- 5
No at-will employment
Terminating without cause means notice or pay in lieu. Where the contract fails, that becomes common law reasonable notice rather than the statutory minimum.
- 6
CASL is opt-in, CAN-SPAM is opt-out
Canada requires consent before a commercial electronic message. An unsubscribe link is not a substitute. This applies to exactly the cold outbound motion most pre-seed B2B companies run.
Questions founders ask
What legal documents does a startup need in Canada?
At pre-seed: articles of incorporation and a minute book, a unanimous shareholder agreement with founder vesting, an IP assignment from every founder including work done before incorporation, a contractor agreement with an IP assignment and a moral rights waiver for anyone outside the company who has built or written anything, employment agreements drafted for your province after 2020, and a privacy policy and terms of use. Add financing documents and a current fully diluted cap table once you start raising.
Is a US founder agreement template safe to use in Canada?
Usually not, and the failures are quiet ones. Canada has no work made for hire doctrine, so assignment language written around it may not transfer what you think. Moral rights survive an assignment unless expressly waived, and US templates rarely include a waiver. There is no section 83(b) election in Canada, so advice built around filing one does not apply. Non-competes are void in Ontario for agreements entered into on or after 25 October 2021.
Should a Canadian startup incorporate in Delaware?
Sometimes, but rarely by default. A Canadian-controlled private corporation gets a refundable SR&ED credit of 35% on up to $3M of qualified spending a year and access to the lifetime capital gains exemption, and both are lost on a US incorporation. The usual counterargument is investor familiarity and QSBS, but QSBS only benefits US taxpayers. Regulated sectors are a genuine exception. The point is that it should be a decision with advice behind it, not the default option in an incorporation service.
What is Waksdale and why does it matter to a startup?
Waksdale v Swegon North America Inc, 2020 ONCA 391, leave to appeal refused by the Supreme Court of Canada in January 2021. If any part of the termination language in an employment agreement breaches an employment standard, the whole termination clause is void, and a severability clause does not save it. The employee is then owed common law reasonable notice instead of the statutory minimum, which is typically several times more. Because startups issue the same template to everyone, this appears in diligence as a liability across the entire headcount.
How is legal readiness scored?
Weight earned divided by the weight that applies to a company at your stage. Items that cannot apply are excluded rather than counted as failures, so a solo founder who has not raised is not marked down for having no shareholder agreement. Deal breakers such as IP assignment and founder agreements carry three times the weight of hygiene items such as a privacy policy. Answering "not sure" earns partial credit and is reported separately, because in a diligence review not knowing sits in the same place as not having.
Last reviewed 2026-08-17 by Brooke Ash, Head of Legal, Ruby. This tool gives general information, not legal advice, and using it does not create a solicitor-client relationship. Your situation may turn on facts this assessment does not ask about.
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