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Welcome to LaRue1964

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Welcome to the new LaRue webpage.  LaRue is the name of our corporation, and 1964 is the year it came into existence.

If you scroll across the top menu bar, you will find 9 pages that gather information on LaRue: HomeAbout LaRue, LaRue Corporate Documents, Licences, FAQS, Maps, LaRue Litigation, Contact,  and Water Maintenance

On the side menu, you will find a list of recent blogposts.

If there are things you want to know, or things you think should be here, just use the contact form, and we will try to get your questions answered!

Photo of Annis Bay take by Rebecca Johnson

What Electoral Area is Annis Bay in?

Electoral Area E is the area that we are in and it surrounds Sicamous. Sicamous has its own municipal government. The Columbia Shuswap Regional District (CSRD) thas a number of Electoral Areas. The CSRD is like a municipality. It is our municipal government. It has a Board made up of a representative from each Electoral Area. We vote for our representative. The representative or Board member for us is Rona Martin.

What is an AGM?

An AGM is short for Annual General Meeting of the Shareholders.

This is the most important place for shareholders to take part in the “ordinary business” of the governance of the corporation.  Governance is just fancy talk for role that shareholders play in the management of a corporation.  The words “ordinary business” come right out of the legislation, and they are, funnily enough, the words for the MOST IMPORTANT BUSINESS.  That is,

  1. getting information about the finances
  2. electing the new directors
  3. appointing an auditor for the year (or dispensing with an audit).

AGM’s must be held annually (15 months is the maximum between meetings).   There must be 21 days notice given to shareholders.  If there is any special business to be conducted, the notice must tell you. It doesn’t have to tell you about the ordinary business, because it is so critical that it goes without saying.   Here is a copy of the notice for the 2018 AGM.  As you will see, it does seem rather spare in its details.  That is normal, since there is not special business being considered.

The meeting length can also vary.  Some LaRue AGMS have lasted as little as 10 minutes, and others have lasted for hours.  In general, the business is conducted expeditiously, and people are on their way home within an hour

Different companies run their AGM’s with more or less formality.  This is true , also, for LaRue.  AGM’s have been held in people’s homes, under the cherry trees and in lawyer’s office.

This year the meeting will be held in the board room at Tingle Merrett, with Doug Allison,  the corporate solicitor.  The address is Suite 1250, 639 5 Avenue South West, Calgary, Alberta.

NOTE ON LAWYERS:  While a rose by any other name …., not all lawyers are precisely the same.  Solicitors are lawyers who work with documents and contracts, advising clients about conducing their business.  Barristers are lawyers who work in court rooms and around litigation.  LaRue has two lawyers:  the solicitor (Doug Allison) and a barrister (Robert Millard).

 

What should I do with my proxy form?

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What is a proxy?   It is a person who has permission to act on your behalf.

A proxy form is just a signed document providing evidence that you have given your proxy (that is, a specific person) the power to vote your share.

As a shareholder, you can use a proxy where you don’t have the time or ability to attend a meeting, but want your vote to be counted.

You can always send a proxy on your behalf, but you do need to give permission in a specific way in order for the Chairperson at a meeting to know that your proxy has been properly given (it is not enough for someone to simply say that they are acting on your behalf).

If you think there is a chance that you won’t attend this year’s AGM, there are 3 ways to use your proxy.

  1. Sign and date the proxy form.  Give it to your  proxy (the person who will go to the meeting for you) and have them bring it with them to the AGM.
  2. Instead of delivering the proxy form to your chosen proxy (trusted friend), you can fax or email the signed proxy form directly to the corporate lawyer, Doug Allison.  His email is dallison@tinglemerrett.com and the fax number is 403 571-8008.  Your proxy will still need to attend the meeting, but will not have to bring the proxy form with them.
  3. Instead of sending a friend on your behalf, you can also give the proxy directly to the corporate lawyer, and instruct them how you want to vote.   That is, you can appoint the corporate lawyer as your proxy.   See Doug Allison’s contact details above.

Just remember, even if you have given someone your proxy, if you change your mind about attending, and decide to come after all, then you will trump your proxy!

 

360 Views

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View from Lot 13

Rebecca here.  Back in the summer of 2017, Richard went out around the property, and took 360 photos from a number of places.  Miranda figured out how to get those photos linked to the wordpress site.  There is nothing like actually WALKING the property, but if you want to remind yourself of things from the comfort of you home/laptop, here is another option.   If you click on the map link below, you will get a google map of the property with pins all over it.  Most of the pins have a link to a 360 photo taken from a place close to a pin.

MAP – Larue 360 Sphere Views

Here are some notes on what you will see.    You will notice they are different colours of google map pins:  pins of a given colour are taken from the front and back of a given lots.  So, most of the lots have two pins, except for 12 and 13.   It is hard to find the marked boundaries for those, so each has four photos from approximately the 4 corners of the lots.  You can also find a 360 photo taken from INSIDE the old cabin 5.

When you click on the link, if you haven’t looked at photos like this before, here are some tips.

  1.  click on the link.
  2. when the photo opens, it will look weird.  don’t worry.
  3. you will see a little arrow circle (either in the upper right hand corner, or maybe the middle, depending on your browser.  Click on that arrow.
  4. This puts you into 360 view.   Use your mouse to click and drag to turn the photo.  You can also zoom in and out.
  5. photos have comments boxes, so you can also note things, or add comments for others to view.

These pins do not appear in the regular google maps:  Miranda added them in a “my-maps” way, which means they are only visible on the wordpress site, or through the link.  You can share the link with others through email.

Thanks Richard and Miranda!   Hope the rest of you enjoy the views!

What is an Audit?

As people begin talking about taking care of  LaRue, they will undoubtedly want to start talking about its financial situation.  One place to look is at the Financial Statements.   I know there are cousins out there with more expertise in reading such statements, and am looking forward to someone doing a basic “Financials 101” post for us! (ie. how to read Financial Statements) Til then, let me get a start on it.

With LaRue, since a big part of the controversy over the past 10 years has involved questions about “audited financial statements” (and who should pay for them), I thought it might be worth having a short discussion about “Audits”.  In brief,

“WHAT IS AN AUDIT AND WHY SHOULD I CARE?”

SHAREHOLDER RIGHTS

The answer to this begins with the rights of shareholders.  In any company structure, shareholders have three basic rights:

  1. to vote for directors at the Annual General Meeting
  2. to share in any dividends declared by the company
  3. to share in the proceeds of the company at its dissolution.

In a small ongoing company like LaRue, it is the first of these rights that is most meaningful: LaRue has not been a big money-making venture, and thus has never paid out dividends (and is unlikely to ever do so); the right to share in proceeds at dissolution is only meaningful when the company ‘dies’.  So, it is the first right (the right to vote at the AGM) that really matters.

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Extract from LaRue Financial Statements, 1982

In order for the voting in a company to be meaningful, the shareholders need to have access to information, and particularly, information about the financial health of the company.  Thus, on a yearly basis, the shareholders have the right to be provided with financial statements. (See sections 155 to 159 of the Alberta Business Corporations Act).  Above, as an example, is one page from the LaRue Financial Statements – 1982 (this is the first year that Arta took responsibility after Doral’s death).

The legislation specifies that financial statements must also be AUDITED (note that the financial statements above are unaudited…we will come back to this below).  While an audit does not guarantee that there is no fraud going on (see the Enron accounting scandal in 2001), it does enable the auditor to state that the statements are a fair representation of the company’s financial situation. In short, when the financial statements are audited, there is a sort of structured scrutiny of the records.  An audit puts additional eyes on the corporate records.

This of course involves both time and cost.  value-vs-cost-outweighing-form-weights-balance-43975815The cost of an audit is simply part of the cost of doing business in a larger corporation.  In a small corporation, however, the cost of an audit may well be greater than its value to the shareholders.  In a small company, the shareholders have additional ways of having access to information (methods not available to shareholders in big publicly traded companies).

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The LaRue Ledger – a page from 1997

For example, for LaRue, Arta brought all the books out to the lake each summer, so people who wanted to could look at the bank statements, the ledger, the cancelled cheques, etc. This is significantly more information than would be available to shareholders in the ordinary course of events.  In such situations, the audit does not provide more information than the shareholders already have.  In this context, shareholders might not WANT to pay for the audit.  An audit is indeed expensive.  Even in a small company like LaRue where there is very little business transacted (maybe only 30 cheques written over the course of a year), an audit can cost between $6000 and $10000.

DISPENSING WITH AN AUDIT

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Unanimity required to dispense with audit

LaRue is not the only small company in which audits may cost more than they are worth.  The legislative framework acknowledges that audits may not make sense for small companies.  And so, in a small company (less than 50 shareholders), the shareholders have an additional right: the right to vote to DISPENSE with audited statements.   That is, if all the shareholders mutually agree, the company does not have to incur the costs of audited financial statements.  See s. 163 of the Alberta Business Corporations Act.

The company still must provide shareholders with financial information each year, but the statements needn’t be audited.  For many years, this is how LaRue functioned.  From LaRue’s beginnings, up until 2005, the financial statements were unaudited.  The sibling shareholders really took over the work with LaRue after Doral’s death in 1982.  If you go to the Corporate Documents page, you can find the links to the financial statements which were filed from 1982 forward.

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The LaRue Ledger – a page from 2004

Things changed around 2003-2004 when Earl was the President of LaRue.  At that point, LaRue’s books were no longer available to the shareholders as they once had been.  Click here for a set of commuications in between Glen, Earl and the lawyer about access to the corporate books.  There was conflict between the three directors (Earl, Bonnie, and Arta) about how the corporation should run, and what information should be available to shareholders (and on what conditions).  Shareholders no longer had open access to books, and the synoptic ledger was not seen again (by the excluded shareholders) until 2009.  It is this conflict over access to information that led the excluded shareholders, in 2004, to vote for an audit at the AGM.

To be clear, the shareholders have the right to have the statements audited, though they can vote against it.  Unless the shareholders unanimously vote to dispense with an audit, there must be an audit and the COMPANY has to pay for it (not the shareholders themselves).  In brief, the shareholders can force the company to incur this cost.

WHAT IS THE OUTCOME OF AN AUDIT?

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A failed audit, 2011

An audit can pass or fail. A failed audit does not mean there is fraud. It simply means that there are issues in reporting that need attention.  A ‘failure’ is expressed in words like “unable to express an opinion” or “disclaimer of opinion”.  You can see an example of this in the image to the right.  You can read it as part of the  LaRue 2011 Financial Statements

For example, LaRue’s statements were first audited in 2004.  They have been audited most years since then.  Shareholders on both sides of the conflict have been unwilling to dispense with the audit.  And each year, the audit has consistently failed.  There have been two recurrent problems: Timber, and Shareholder Loans.   Here is a bit of the story on each of these two problems.

  • TIMBER: One year, 5 loads of timber were sold (5 loads of timber removed from Bonnie’s lot). The question was how to account for the money from the timber. Did it belong to Bonnie (the lot licencee) or to LaRue (the landowner).  In some ways, the answer to the question does not matter; either is possible. But until the question can be answered one way or there other (timber taken off the land will belong to EITHER the licensee OR to larue), you cannot have clarity in the books.
  • SHAREHOLDER LOAN ACCOUNTS: The shareholder loan account is linked to the way in which the Shuswap land originally passed from Doral to LaRue. There will be a page with a fuller account, but for now, in brief, LaRue purchased the land from Doral for $500,000 (in 20 promissory notes of $25,000 each). LaRue has not yet paid out those loans.
    • In 1978, Doral transferred his interest in those promissory notes to his children in equal measure.  See LaRue Directors Minutes, July 13, 1978 Thus, each child not only had 10 shares in LaRue, but was entitled to $62,500 each. The way to understand this, is that each sibling was loaning that money to LaRue. On the LaRue books, these promissory notes would have showed up under the heading of Shareholder Loans.

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      Excerpt from the LaRue Financial Statements, 2008

    • What happened next was that the accountant began to add various amounts to the shareholder loan accounts — amounts related to expenditures that were made by individuals on either buildings or infrastructure. These amounts did not involve any transfer of money, but were transactions that the accountant thought would work for the purposes of some tax deductions.  As a result, the ‘amount’ in the individual shareholder loan accounts went up for Darla, Arta, Glen and Earl [who paid for a gate]).  So, here notice that “Due to Shareholders” is higher than the $500,000 which reflected the promissory notes.
    • Later, in the early 2000s, LaRue’s accountant (Max Wiebe) re-thought the approach he had taken, and determined that the extra amounts he had added to the shareholder loan accounts should be backed out.  No problem, since no extra money had changed hands, and no LaRue had not taken tax deductions on the basis of these numbers, but he was still of the view that a better practice would be to correct the books to remove these amounts.  This, however, was a point of contention for some shareholder who were of the view that their particular shareholder loan accounts should stay with the higher number.  Max Wiebe resigned his position around this time, and so a new accountant (and auditor) had to be hired.
    • In order to address the question of the shareholder loan accounts, In order to do this, he needed an unanimous shareholder agreement affirming that the additional amounts were not in fact loans, but were accounting moves that should be corrected on the books. In otherwords, that there had not in fact been additional loans to LaRue beyond the initial promissory notes. All this was made visible in the 2004 audit.  Here is the memo written for LaRue by Deborah Isley, summarizing the issues and how to resolve them. Click here for Email from Deborah Isley to Earl, with attached Memo (Dec 31, 2004) on issues arising in the audit
    • Unfortunately, not all shareholders were willing to sign that agreement, and thus, the auditor could not say that the books represented reality, and thus the audit that year failed.  And has failed each year since.
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“Management Discussion & Analysis”

A failed audit is nothing more than a message to the shareholders. When an audit fails, it is also possible for the directors to attach a message to the shareholders explaining their perspective on the failed audit. Such messages are often titled “Management Discussion and Analysis”.  The goal of such a document is to simply provide more information to the shareholders, to help them better understand the implications of the audit results. Here is an example of the MDA that was attached to the 2012 Financial Statements.

So… to return to the beginning? Why do audits matter?  They increase transparency, but also increase the costs to LaRue.

LaRue has no way to recoup those costs other than by increasing the assessments on Licence holders.  There is something that is imbalanced in a system where a shareholder (who is not also a licence holder) can require the company to hold an audit, passing the costs of that decision along to the licence holders.  This is one reason why, as people discuss how to re-organize the LaRue structure, it is important to think about re-attaching shares to licences (so that those voting for audits are the same people who will either bear the costs, or reap the benefits of that decision.

 

How are new shares issued?

What are “shares” and how do they come to be issued (come into existence)?

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Grandad’s cancelled share certificate #5 (when he got more shares and so needed a new certificate)

Shares are issued out of the corporation’s Treasury and can only be issued following a resolution of the board of directors.

This resolution outlines the number of shares to be issued, the money or worth for which the shares are to be issued and the share certificate that will be issued to reflect such shares.

A corporation can have more than one type of share, called “classes of shares”.  When a corporation has only one class of shares those shares are often called “common shares”.  Issuing common shares is the first and most basic starting point when incorporating.  If there is only one class of shares, the rights of the holders must be equal in all respects and must include:

  1. the right to vote at all meetings of shareholders
  2. the right to a share of dividends if they are declared, and
  3. the right to share in the division of the remaining property of the corporation upon dissolution.

The principle, with only one class of shares, is that all shares confer equal rights.

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Back of granddad’s share certificate #5 (showing that his two shares did not come from Treasury, but were transferred from the holders of certificate #3 and certificate #4 [George and Ruth Kearl])

When a corporation issue more than one class of shares, the articles must set out the rights, privileges, restrictions and conditions attached to the shares of each class.

There can be any number of different rights that can attach to shares.  The primary three rights above (concerning Voting, Dividends, and Dissolution)  must be attached to at least one class of share, but not all rights need to be attached to the same class of share.

Some Examples of typical Special/Preferred share provisions are as follows:

  • Non-Voting:  Provides the shareholder very little or no vote on corporate matters or the direction of the company, such as the election of the board of directors or mergers.  This type of share is usually implemented for individuals who want to only invest in the company.
  • Redeemable:  Can be redeemed or purchased by the corporation from the shareholder at the corporation’s option, usually at any time.
  • Retractable:  Gives the shareholder the right to require the corporation to buy back the shares from the shareholder at the shareholder’s option usually at any time.
  • Purchase for cancellation: Redemption and retraction provisions give the corporation or the shareholder the right to trigger a purchase/sale of shares at a share price specified in the provision.  In certain circumstances, it may be desirable for the corporation to repurchase the shares at a share price that is different from the redemptions or the retraction price; for example, the corporation is in financial difficulty and the shares are worth less than the redemption or retraction price.
  • Dividends:  A fixed dividend will require or permit the corporation to pay a dividend on the shares when the corporation is profitable and is typically calculated as a percentage of the amount originally paid for the shares and paid out annually.  A variable dividend allows the corporation to pay a divined at a time and in an amount, at the discretion of the directors.  An advantage of using different classes of shares is that a dividend may be declared and paid on one or more classes to the exclusion of the other classes.
  • Liquidation, dissolution or winding-up:  This provision will determine the extent to which each shareholder will share in the corporation’s equity.
  • Price Adjustment:  This clause is used for an estate freeze or similar tax planned transaction.  The determination of the fair market value (“FMV”) of the shares on the date of the freeze is critical to the success of the structure. For that reason, a formal valuation of the shares as at the date of the freeze is usually obtained to support the freeze value should the CRA contests the value.

Once the board of directors has approved a resolution adopting a form of share certificate, it can issue shares.  Each person that is to become a shareholder must sign a “share subscription” and their name and contact information must be entered in a “securities register” the corporation holds.

 

“The Land is Precious” – Stories & Photos

Preparing for the 2017 Trial, the lawyers told the siblings that it is important to understand ‘what’ the centre of a conflict is.  In this case, some shareholders had a narrative focused on “The Land as Valuable” (and how to sell the land to distribute its value to the siblings).  Other shareholders had a different narrative:  “The Land is Precious” (and how to preserve the land as a place for people to gather and enjoy time with each other and the land).

The lawyers asked each of the siblings to write up a short story explaining why, for them, the land is precious.  Below, you can read those stories:

Here are a number of photos gathered to capture some of that preciousness.

1969 family at lake

The Lake – circa 1969

Extended family at lake 1974

At the Cabins – circa 1974

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Family Working Together

Games-sack race

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Firefighters – 2006