Ch1 Flashcards
Explain what a business involves
s1 PA - business definition is “every trade, occupation, or profession”
Can be non profit, gov org, charity
Involves provision of G&S
Requires some form of organization.
Identify various potential stakeholders of a business and indicate the primary stakeholders we are concerned with for this course
Stakeholders are persons affected by business activity/conduct. They can be the community, other businesses, competitors, suppliers, employees, customers, government, etc.
We are primarily dealing with equity investors, managers, and creditors.
Name registration requirements for a sole proprietorship
If using own name, don’t need to register. If you are in the business of “trading manufacturing or mining”, not in a partnership, and not using your own name, then you must register under s88 of the Partnership Act.
Registration requires: name, nature of business, full SP name and address.
Registrar will maintain registry (s90).
Although case law defined “trading” narrowly (see Tilden and Lambert), it is cheap to register and the penalty for not registering can be a 2k fine, or imprisonment. So best to register.
Name registration requirements for partnership
Persons in a partnership MUST file a registration (s81 of PA). The registration must state name, nature of business, and full name/address of partners.
If any info changes, must amend in ASAP (s83)
If no reg filed, all partners can be J&S liable for actions brought against them (s87). Failure to register might mean a fine, but the partnership will still exist.
Registrar maintains registry with names of partners/ name of business (s90)
Name registration for Limited Partnership
Requires a cautionary suffix (ie. “LP”)
Names of limited partners cannot show up in the name or they will be liable as a general partner to creditors who extend credit without actual knowledge that the limited partner is not a general partner. (s53)
Name registration for LLPs
Must have “LLP” at end of name (s100). Registration is required, without it partners will be treated as a general partnership and will be personally liable for obligations under the partnership (s94).
Name registration for corporations
CBCA:
s12 - cant be incorporated under a name that doesnt meet prescribed requirements. Director can refuse to register the name or can order a name change.
Prohibited names include: names with prohibited words, names that are too general, names that cause confusion with other names (NUANS helps this). Names which are misdescriptive are also prohibited (ie misleads public).
All corporate names need a descriptive part, distinctive part, and a suffix (ex. “ltd”).
If a corporation is DBA another name, must register that (s88 of PA). Under the CBCA, names can be reserved for 90 days.
BCBCA:
Numbered names dont need to be registered. If non-numbered name is desired, must apply ahead of time and can pick up to 3 in order of preference. If approved, can be reserved for 56 days (s22). These names must also comply with prescribed requirements.
Also note - provincial registrar cannot refuse extra provincial registration of CBCA corps even if a corp with a similar name is already registered in that province - so less name protection under provincial legislation.
Policy of name registration?
Important for recognition:
- Identify for credit check
- Identify party for starting an action (other than under business name - or to check available assets)
- Avoid misleading by description of name as plurality of persons when it is not
- Avoid passing off (check via NUANs) – note registration under federal trademark act is best option for this.
How sole practitioner is financed?
(1) investment by SP
(2) Funds borrowed from lenders (bank or 3P)
- bank: long term where interest pmts made and then at end all principal is due. Bank takes security interest, might require certain ratios for which failure to maintain leads to bank rights such as acceleration clause or ability to appoint a manager-receiver. OR short term revolving line of credit where interest is only charged on withdrawn amount – good for seasonal business.
- 3Ps might mean securities regulations.. which are expensive to comply with unless you meet an exemption
(3) trade credit
How partnership is financed?
(1) investment by partners
- Partnership interests or loans from third parties may mean securities legislation applies - could require prospectus and other requirements unless an exemption is available
(2) funds borrowed from lenders
- bank (with bank rights/protection)
- 3P (might mean securities leg applies - expensive)
(3) Trade credit
How LP is financed
(1) investment by partners
(2) borrowed funds
(3) trade credit
- note the usual: securities leg might apply, creditors might constrain business,
How LLP is financed
(1) investment by partners
(2) borrowed funds
(3) trade credit
- note the usual: securities leg might apply, creditors might constrain business,
How corporation is financed
(1) equity investors (many of them) - good at amassing capital
Interests are divided into shares, investors are referred to as shareholders. Shares dont give title to legal assets. Separate legal entity.
Securities legislation may apply.
Why is limited liability important and why cautionary suffixes needed?
Limited liability is used because in theory it could be agreed upon between creditors and investors. Loans would cost alot – this is the default now.
Asset partitioning - shields personal assets and means no need to look into each individual’s assets for creditors.
Limited liability inspires investment (lower valuation and monitoring costs). This leads to econ growth, creativity of industry, more willingness to take risk. Limited liability makes it easier to get investors and amass capital. These leads to other benefits like economies of scale. Lower insurance rates.
others: better investment decisions(invest where returns are lower - market diversity?), liquidity (less restrictions on resale of investments - since asset partitioning), diversification of investments.
The suffix is used to signal third parties of limited liability. Shows them who they can sue. The reason is that if creditors and investors agreed ahead of time to make this agreement to have limited liability, the creditor wouldnt be deceived into charging less for loan. So this can help compensate creditors for the greater risk.
