Business Law Flashcards
A sole proprietorship exists where
an individual carries on business for his or her own account without the involvement of other individuals, except as employees
- all income and assets accrue exclusively to the sole proprietor
- all losses, obligations, contractual and tortious liability associated w the business are the sole proprietor’s responsibility
What is a major disadvantage of sole proprietorship?
There is no limited liability for the sole proprietor, all assets may be seized in satisfaction of business obligations and liabilities
how can a sole proprietor limit their personal liability exposure?
by contract or through insurance
Sole proprietors must comply with s2.2 of ON’s Business Names Act, which states that
no individual shall carry on business or identify their business to the public under a name other than their own, unless the name is registered by them
Section 7(1) of the Business Names Act requires
leave of the court if an individual, corporation or partnership commences/defends an action under a name other than the registered name of the business
Business includes every
trade, occupation, profession, service or venture carried on with a view to profit
Business registration must be filed with
The Ministry of Public and Business Service Delivery
What is the penalty for non-compliance with the BNA and registration requirements?
summary conviction
Small Claims Court subrule 5.06(1) enables a sole proprietor carrying on business under a name other than his own to
sue or be sued in the name of the sole proprietorship
Partnership is defined as
two or more individuals or corporations carrying on business together with a view to profit
ON recognizes three types of partnerships:
- general partnerships
- limited liability partnerships (LLP)
- limited partnerships
Section 2 of the Partnerships Act defines a partnerships as
relationship that subsists between people:
- there must be an ongoing business activity
- there must be a view to profit
- there is an agreement to carry on business in common and to share profit.
Section 3 of the Partnerships Act sets out the rules for determining
the existence of a partnership
in determining whether a partnership exists, courts will look at:
the intention of the parties as disclosed in the partnerships agreement
the conduct of the parties
Failure to file a registration of a partnership is an offence under
Section 10 of the BNA
The characteristics of a general partnership are:
- no separate legal existence
- each partner is an agent of the partnership and the other partners when acting in the normal course of partnership business, or what reasonably appears to be so
- each partner is JOINTLY LIABLE with the other partners to the full extent of their personal assets fo9r all debts and obligations of the firm incurred while a partner
Upon death, a general partner’s estate remains
severally liable for the partnerships debts and obligations in so far as they remain unsatisfied, subject to the prior payment of their individual debts
A retired partner remains
liabile for partnership debts or obligations incurred BEFORE RETIREMENT with the remaining partners and the firms creditors (Section 18 Partnerships Act)
A retired partner can formally achieve their retired status by
publishing an advertisement in the Ontario Gazette regarding retirement
In the absence of a partnership agreement, the terms of a partnership will be determined by ss20-31 of the Partnerships Act, including:
- all partners share equally in the capital and profits of the business and must contribute equally to the losses
- the firm must indemnify partners for payments made or personal liabilities incurred in the ordinary course of business or for the preservation of the business or partnership property
- partners are not entitled to interest on their capital contribution
- each partner may take part in the management of the partnership business
- any differences that arise may be decided by a majority of the partners, but no change in the nature of the partnership can occur without consensus among all partners
- every partner must account to the firm for any benefit derived without the consent of the other partner for any use of the partnership name, property, or business connection
- all profits from a competing business carried on by a partner without the consent of the others must be accounted for and paid over to the firm
Sections 32-44 of the Partnerships Act are concerned with
the dissolution of the partnership
In the absence of an agreement to the contrary, a partnership is dissolced
- on the expiration of the term fixed for its existence
- at the termination of a single adventure or undertaking for which it was entered into
- if entered into for an undefined time, by a partner giving notie to others of their intention to dissolve the partnership on a date mentioned in te notice, or if no date mentioned, on the date the notice is commissioned
- by the death or insolvency of a partner
A limited partnership is
that the liability of each limited partner is limited to the amount of money or other property that the partner contributes or agrees to contribute to the limited partnership
Can a limited partner contribute services to a LLP?
no
A limited partnership is formed by
filing a declaration with the Ministry of Government and Consumer Services, signed by all general partners and stating, among other things:
- firm name
- general nature of its business
- the names and addresses of the general partners
- the address of the principal plae of business in ON
When does a LP declaration expire?
after 5 years but may be renewed by filing a new declaration before the expiry date
A limited partnership must consist of
one or more persons who are general partners and one or more persons whp are limited partners. A person may be a gp and an lp at the same time in the same partnership
How is a “person” defined in the LPA?
An individual, sole proprietorship and/or a corporation
A limited partner is
a passive investor rather than an active participant in the operation of a limited partnership
Section 21 of the LPA provides that a limited partnership is dissolved if
a gp dies, retires, becomes incapable of managing property, or is dissolved in the case of a corporate general partner
Upon the dissolution of a limited partnership, the liabilities of
creditors are paid first
After the dissolution of a limited partnersip, and after creditors are paid, the order of payments follows:
- limited partners in respect of their share of profits and other compensation
- limited partners in respect of their contributions
- general partners other than for capital and profits
- general partners in respect of their profits
- general partners in respect of capital
When a limited partnership is dissolved, what must be filed?
A declaration of dissolution with the Registrar of Partnerships
No extra-provincial limited partnership shall carry on business in ONtario unless
it has filed a declaration with the Registrar of Partnerships together with a power of attorney appointing an attorney in Ontario, per the LPA section 25
which provices currently do not have partnership legislation that provides that if an extra-provincial limited partnership is registered, the LPs continue to enjoy limited liability?
Manitoba and QC
What is a limited liability partnership?
a cross between a general partnership and a limited partnership, where the assets of an LLP can be looked to in order to satisfy the debts and claims against the LLP, but a partner in an LLP is not liable for the debts, liabilities, or obligations of the partnership or any partner arising from negligence/wrongful acts that another partner/employee commits.
An LLP may only carry on business in….(conditions)
ontario, for the purpose of practicing a profession governed by the Act and provided that the following conditions are met:
- the Act must expressly permit the LLP to practice the profession (lawyers, paralegals, CPAs)
- the governing body of the profession must require the LLP to maintain a minimum amt of liability insurance
- the LLP must register its firm name under the BNA
- the firm name must contain the words ‘limited liability partnership’ or the abbreviations LLP
The minimum insurance requirement for each paralegal partner is currently
$1,000,000
A corporation is
a legal entity separate in law from its owners and can own property, carry on business, possess rights, and incur liabilities
Shareholders of a corporation own the corporation through
their ownershp of shares, but they do not own the property belonging to the corporation, and the rights and liabilities of the corporation are not the rights and liabilities of the shareholders
Shareholders liability is
limited to the value of the assets they have transferred to the corporation in exchange for shares
A corporation continues notwithstanding the
death or withdrawal of a shareholder by the sale of their shares
COrporate dissolution may only occur:
- when the requisite majority of shareholders resolve that the corporation should be dissolved
- a court orders that the corporation be dissolved
- the corporation is deemed to be inactive or has breached certain statutory provisions
Business can be incorporated either
provincially, under Ontario’s Business Corporations Act
OR
federally, under the Canada Business Corporations Act
A corporation under the Ontario BCA can
carry on business only in Ontario unless it obtains a license under the extra provincial licensing statute of another province
As of June 13, 2019, non-distributing federal corporations are required to create and maintain a register of individuals with significant control, which is defined as
someone who:
- owns a significant number of shared (25% of the corporations voting rights or worth 25% of the corporations fair market value)
- controls or directs a significant number of shares
- has significant influence over the corporation or
- has a combination of the above factors
Failure to comply with the new obligations on reporting individuals with significant control may result in
Fines/imprisonment
- the corporation may be liable to afine up to $5,000
- directors, officers and shareholders may be liable to a fine of up to $200,000, 6mos imprisonment or both
Incorporation is accomplished by
filing articles of incorporation in the form prescribed by the regulations with the appropriate gov department, together with the required supporting material and fees
the three main parties of a corporation are
- directors
- officers
- shareholders
Directors are required to
- manage or supervise the management of the business and affairs of the corporation.
- obligation of a fiduciary duty to act honestly, in good faith, with a view to the best interests of the corporation
- obligation of a duty to exercise the care, diligence and skill of a reasonably prudent person in comparable circumstances
Officers of a corporation
- have the same fiduciary duty, duty of care, and duty to disclose interests in material contracts or transactions
- unlike directors, officers do not have the benefit of statutory provisions permitting reliance on financial statements and reports of independent experts
A person becomes a shareholder when
shares are issued to them in exchange for money paid, property transferred, or past services rendered to the corporation
under section 141(1) of the OBCA and s 50 of the CBCA, a corporation is required to keep
a securities register that includes a listing of the shares issued, together with the name, address and number of shares held by each shareholder, and the date and particulars of the issue of each share
Section 28 of the OBCA and section 30 of the CBCA prohibit the corporation from owning
shares in itself or in its holding body corporate, except in certain limited instances
one of the most important rights of shareholders who own voting shares is the right to
elect and remove directors from office
according to section 149 of the OBCA and 162 of the CBCA, voting shareholders have a right to appoint
an auditor at each annual meeting of shareholders
What is the function of an auditor?
To act as the shareholders’ representative or watchdog, making such examinations as they consider necessary to be able to report to the shareholders about the financial statements
The auditor has the rifht to attend
any shareholders meeting and to be heard
List the ways that shareholders can ensure the protection of their rights and interests
- personal actions for the infringement of a personal right, such as the right to receive notive of, or to vote at a shareholders meeting
- applications for winding up
- right of dissent and appraisal
- investigations
- compliance orders
The two most common methods of shareholders protecting their interests are
derivative actions and actions for oppression
What is a derivative actions?
a shareholder may be injured indirectly if a wrong is done to the copt and the OBCA and CBCA provide shareholders with a statutory right to bring a derivative action
a corporation is preferable where
there is a substantial uninsurable risk possible, therefore a corporation can limit a proprietor’s or partner’s liability
A corporation allows for
perpetual existance, and will continue to exist beyond the death or departure of partners
If a venture is for a single project or a limited number of commercial transactions, you should enter into a
partnership or limited partnership form , sinve they can be dissolved more easily and expiditiously than a corporation
Share structures can be very helpful when
estate planning, so as to leave shares to family members
where there are a large number of owners, _____ is preferrable
incorporation, since the responsibility of one shareholder for the acts of the other shareholds is absent, and incorporation provides rules for control and greater flexibility in financing
one disadvantage of a corporation to note is that
minority shareholders are subject to the will of the majority, and their shares are not very marketable in the abselce of a compulsory buy-sell agreement on the withdrawal of a shareholder.
by contract, if a partnership wishes to withdraw and the majority will not buy them out, the partnership can normally be dissolved and assets liquidated
incorporation or a limited partnership is desirable when employers want to allow
employees to participate in the growth and profits of the business without giving them the management rights of a partner
As of July 5, 2021, the OBCA was amended to remove
the Canadian residency requirements, but OBCA corporations must still include the residency status of directors in certain filings such as their Articles of Incorporation and their initial and annual returns
the CBCA requires that 25% of directors of a CBCA corporation be
residents of Canada
