Turning a Side Hustle Into a Company Without a Governance Mess

The situation

Deepa worked full-time as a warehouse worker and Tuan worked full-time as a security guard, and for close to two years they had been building a small product business together in whatever hours were left over. What started as something they sold at weekend markets had grown steadily, helped along by a handful of retailers who kept reordering. By the time they came to Treadstone Law, the business was bringing in roughly $100,000 a year in revenue, and the two of them were doing everything themselves — buying materials, filling orders, handling the books, and increasingly turning down opportunities because they were still operating as an informal partnership with no corporation behind it.

They had already taken a run at incorporating on their own using a low-cost online kit a few months earlier, planning to formalize the business before a wholesale account they were courting would sign a contract. The kit produced articles of incorporation and a stack of template bylaws, and Deepa and Tuan assumed that was the end of the paperwork. They had not yet used the corporation for anything — no bank account opened in its name, no contracts signed — when Linh, the bookkeeper helping them prepare for the wholesale deal, suggested they have a lawyer check the structure before they went further.

What the review found

A corporation, once it exists, is legally required to have a functioning board of directors. Under the Ontario Business Corporations Act, the board is the body that actually runs the corporation — approving major decisions, appointing officers, authorizing the corporation to sign contracts and open bank accounts, and issuing shares. The generic template bylaws Deepa and Tuan had adopted assumed a conventional structure: a board that met, kept minutes, and passed resolutions the way a larger company's board would. Neither Deepa nor Tuan had ever been formally appointed as directors under that structure, no first board meeting had been held, and no officer had been appointed with authority to sign on the corporation's behalf.

For two people running a business between shifts at other jobs, that structure was more machinery than the business needed, and it was already causing a practical problem. The wholesale retailer's onboarding paperwork asked who was authorized to sign the supply agreement on behalf of the corporation, and neither Deepa nor Tuan could point to a document that actually said so. If the business had opened a bank account or signed a contract on the strength of the incorporation alone, without the corporate formalities behind it, a court could later question whether the corporation had validly authorized that action at all — a real risk when a bank, landlord, or business partner later needs to confirm someone had authority to bind the company, or when the founders' own liability protection depends on the corporation being properly operated as a separate legal entity.

Ontario law offers a simpler option built for exactly this kind of business: a unanimous shareholder agreement, sometimes called a USA. Under the Business Corporations Act, all of the shareholders of a corporation can sign a written agreement that restricts, in whole or in part, the powers of the directors to manage the corporation and transfers those powers directly to the shareholders instead — the mechanism depends on that unanimity and that writing; an agreement signed by only some of the shareholders is a private contract between those people and does not move any of the directors' authority. Even where a unanimous shareholder agreement takes the directors' powers away entirely, the corporation still needs at least one director elected and shown in its records and filings — what changes is that the board no longer holds the decision-making power or carries the duties and liabilities that go with it, since those move to the shareholders who signed. For a two-person business where the owners are also the only people making decisions day to day, it collapses the board's authority into the same people already running things, without leaving the corporation legally rudderless.

What we did

1. Confirmed the corporation had not yet been used for anything binding. Because no bank account, lease, or supply contract had been signed in the corporation's name, there was no existing transaction whose validity needed to be untangled — the fix could be put in place cleanly before the wholesale deal or anything else went ahead. Had the retailer's supply agreement already been signed under the unfixed structure, we would have had to consider ratifying that contract after the fact, a messier process than building the governance correctly first.
2. Drafted a unanimous shareholder agreement naming Deepa and Tuan as its only shareholders and removing the directors' powers to manage the corporation. The agreement transferred the full authority to manage the business — approving contracts, opening accounts, appointing officers — directly to Deepa and Tuan as shareholders, replacing the board structure the template bylaws had assumed. This mattered because it meant the two of them could keep making decisions exactly the way they already did, without needing to hold formal board meetings neither had time for between shifts.
3. Rebuilt the corporate records to match. The initial resolutions were redone to reflect the actual structure: share issuances to Deepa and Tuan in the proportions they had agreed on when they started the business, formal appointment of Deepa and Tuan as the corporation's directors of record so it kept the minimum board membership the Act requires, appointment of officer titles so each of them had clear signing authority for day-to-day matters, and a corporate minute book that would hold up if a bank, lender, or future buyer ever asked to see it.
4. Explained what signing the agreement meant for their personal exposure. Taking on the directors' powers under a unanimous shareholder agreement also means taking on directors' liabilities — for things like unremitted source deductions and unpaid wages if the business were ever to fail. Deepa and Tuan were already exposed to that risk informally as the people running the business day to day, but our team made sure they understood it was now a formal legal consequence of the structure they were choosing, not a side effect they had stumbled into.
5. Set up a simple annual routine so the paperwork would not lapse again. We put together a short checklist covering the annual resolutions, share register updates, and corporate filings the business would need going forward, sized to what two working owners could realistically keep up with themselves rather than modelled on what a larger company with staff dedicated to compliance would do. The goal was to prevent the exact problem that started this file from happening again once the wholesale deal was behind them and attention moved elsewhere.

The outcome

By the time the wholesale retailer's onboarding paperwork came due, Deepa and Tuan had a signed unanimous shareholder agreement, a properly constituted minute book, and clear officer titles that let them answer the retailer's authorization questions with an actual document instead of an assumption. The corporation opened its bank account, signed the supply agreement, and began operating on a footing that would hold up to scrutiny from a bank, an accountant, or eventually a buyer, rather than one built on template paperwork that had never matched how the business actually ran.

Nothing about the fix was dramatic — no dispute, no dollars lost, no deal that fell through. That was the point. Because the gap was caught before the corporation had signed anything or opened an account, there was no transaction to go back and re-paper, no counterparty to reassure after the fact, and no question later about whether an agreement made in the corporation's name had actually been properly authorized. Deepa and Tuan kept running the business exactly as they had been, just with paperwork that finally matched reality.

The bookkeeper's instinct to flag the structure before the deal closed is worth noting on its own. Linh was not a lawyer and was not asked to catch a governance problem, but recognizing that something about the paperwork did not sit right, and saying so before it became a signed obligation, is often what separates a quiet fix from an expensive one. Deepa and Tuan did not need to become experts in corporate law to run their business well; they just needed someone in the room who knew when to ask a lawyer to look.

What you can learn from this