Final Exam

Question 1

Liability

Answer 1

A debt or obligation. A right that is recognized by law that can be enforced by a person, a court process, that can result in a court ordered remedy

Question 2

Legal Risk Management Plan

Answer 2

anticipates possible legal liability, and provides preventative and remedial strategies
5 steps
1. Audit of potential liabilities
2. Prioritize risks identified in terms of likelihood and potential result
3. Develop strategies to deal with each risk
a. avoid the risk
b. reduce the risk
c. transfer the risk
d. absorb the risk
4. Implement plan
5. Revise Plan

Question 3

Sole Proprietorship

Answer 3

Not a legal entity separate from its owner. Limited liability does not exist
Most common and simplest form of business entity.
Sole proprietor is directly and personally liable for all business liabilities
This includes vicarious liability: liability created by the employees
Sole proprietor has unlimited liability, all his or her assets are at risk for business liabilities

Question 4

Prophylactic Actions

Answer 4

Actions to protect yourself
1. Best: insurance
2. Put investments in creditor proof assets (RRSP, Individual pension plans)
3. Before going into a business, ensure you make legitimate business and estate plan to redistribute your property, and if desirable, transfer assets to other individuals (this must be an absolute transfer done well in advance)

Question 5

Cooperatives

Answer 5

Eliminating the middle-men (brokers) in the economy
- Try to sell product as directly to consumers as possible
Basic Principles
- Each member has one vote regardless
- No proxy votes, you have to be present
- No fixed rate of return on capital

Question 6

Partnerships Definition

Answer 6

A relationship between people who do business together with the intention of making a profit

Question 7

Characteristic of a Partnership

Answer 7

Implicit Agreement: While an explicit agreement is common, its absence is not necessarily fatal to the existence of a partnership.

Business Nature: Partnerships are generally formed for any trade, occupation, or profession aiming to make a profit.

Sharing of Profits: Sharing profits is indicative of a partnership, though by itself, it may not be sufficient evidence.

Capital Contribution: Partners usually contribute capital, which can be in the form of property or money.

Active Role: Partners are often actively involved in running the business.

Ongoing Business: A partnership typically involves an ongoing business, not just isolated transactions.

Question 8

Partnership by Estoppels

Answer 8

Precluded from denying
- Where you hold yourself out to be a partner even though you’re not
- If you allow someone to say they are your partner you can be held to be a partner if you don’t protest it

Question 9

Liability in Partnerships

Answer 9

Unlimited Liability: Personally responsible for the debts and obligations of the partnership

Agency: Every partner can act as an agent for the partnership and create liabilities for which all partners are responsible

If you want limited liability, there must be a separate entity

Question 10

Specifics of Liability and Termination (Partnership)

Answer 10

Liability Limit: Partners liability is limited to the time they were part of the partnership

Proper Termination: Publishing a notice of dissolution and notifying people who have dealt with the partnership

Lawsuits: Partners may have legal disputes among themselves, but a partner cannot sue the partnership as a whole

Employment: Partner is not considered an employee of partnership

Asset Risk: Personal assets of partners can be used to satisfy liabilities of partnership

Question 11

Agent

Answer 11

Distinguishing feature
can create contractual liability for principle
agents usually exist by contract, but you can have them by estoppels. They do contractual work. Must always disclose they are agent

Question 12

Principal

Answer 12

Enters into an agency contract with parameters

Question 13

Implied terms of the partnership act

Answer 13

Term that does not exist in a contract but that the courts will inset into the contract even though the parties never agreed to it

Question 14

Agency Law

Answer 14

The relationship between the principal and agent according to which the principal has authorized the agent to enter into a contract with third parties on the principals behalf

Question 15

Statutorily implied terms in respect to the partnership act

Answer 15

Partnerships are a consensual relationship or contracted relationship
a. all partners may take part in the management of the partnership
b. need the consent of all existing parters before you bring in a new partner
c. all partners are liabile to share equally in contributions to capital
d. no partner is entitled to remuneration in acting in partnership businesses
e. Any partner may terminate the partnership at any time on given notice

Question 16

Power of attorney

Answer 16

When someone is chosen to do the bidding of a person incapable of carrying out day to day legal tasks

Question 17

Ratification

Answer 17

If an agent exceeds the authority it has to make contract, then the principal is not held liable, but the principal can ratify the contract to dissolve. If the principal does not ratify the contract made, then the pseudo-agent is held liable for the contract

Question 18

Agent by Estoppels

Answer 18

Prevented from denying
A bar or barrier which prevents a person from denying the truth of certain facts when this person, by words or conduct, has led another person to believe that certain facts are true and to act and rely upon these facts
i. Apparent authority: the agent has no real authority but appears to have authority to act on behalf of the principal on account of the past matter of transacting business
ii. Holding out: the principal has used words or behaved in a manner that represented the other person as the other principal’s agent. or the agent says he is an agent and the principal doesn’t do anything to stop it
- To test the agency of the principal: the principal in such cases is responsible of the agent, if a mythical reasonable person, could reasonably assume that the agent is acting within the scope of actual authority, then the principal is bound by the act of the agent

Question 19

Agency by necessity

Answer 19

When the agent enters into contracts with a third part for the benefit of the principal without the consent of the principal, and to limit losses that the principal could experience

Question 20

Termination of agency

Answer 20

If not mentioned in the contract, it is terminable by notice

Question 21

Duties of the agent to the principal

Answer 21

1. Agent must comply with the contract establishing the agency or he is liable
2. Agent must be diligent in reprising
3. Duty of care implied: whether paid or not, must be careful
4. Duty of personal performance: cant sub delegate tasks

Question 22

Fiduciary

Answer 22

A person who is trusted to make decisions in the best interest of another person, acting with honesty and full disclosure. They must put the other persons needs before their own

Question 23

Fiduciary Duties

Answer 23

1. Personal Performance
2. Duty of Bona Fides - good faith agent cannot place self in conflict of interest between agent and principal
   - cannot take secret commissions
   - agent cannot intercept opportunities of the principal unless principal grants permission
3. Cannot act on behalf of a third party and principal at the same time

Question 24

Duties of principal to the agent

Answer 24

Remuneration: an agent has the right to be paid by the principal. Can be specified in contract, if not, then paid by quantum meruit: you are entitled to be paid by a reasonable fee

Question 25

Limited Partnership

Answer 25

A limited partnership is distinguished from a partnership because of its structure
- certain partners have limited liability called limited partners and you must have at least one general partner
- a limited partner can easily and accidentally convert themselves into a general partner

Question 26

Limited Liability Partnership

Answer 26

Provides protection for the personal assets of an innocent partner from professional liability claims arising from the negligence or misconduct of another partner, associate, or employee in whose work the innocent partner was not involved
Once registered a partner in LLP is not liable for
-debts
-obligations/liabilities
-another partner

LLP relates only to personal assets not business assets
LLP model extends protection to contractual or trade debts is called the “full shield” only sask has it

Question 27

Partial Shield

Answer 27

Protects innocent partners from negligence, wrongful acts etc … of others in the firm, but does not provide any protection for contractual or trade debts

Question 28

Corporation

Answer 28

Liberates investors to take risks -> all you can do is lose what you paid for in shares
Corporations can sue people, but has limited liability because it is an legal entity.
Must act through human agents
Separate entity principle: a corporation is a separate person from the investor, because so, the investors are not responsible for the actions of the corporations

Question 29

Corporation Characteristis

Answer 29

1. Limited liability
2. Taxt advantage - payments of salary to spouse and children are easily facilitated, dividend sprinkling (giving divs to family members who are in lower tax bracket for lower tax rates), small business tax deduction (eligible for tax savings for corporate tax rate, money saved must remain in company to re-invest), preferential tax breaks for divs, capital gains exemption for sale of shares of first $750,000 , Estate freeze: allows you to pass active shares to heirs without tax consequences, Independent pension plan: allows you to increase what you would otherwise be retirement income
3. Management: Shareholders elect board of directors once a year
4. Transfer of ownership: easy process
5. Continuous existence: if someone dies, the corp does not dissolve
6. Fidelity: ethical behaviour
7. Loyalty: you can have shares in competing corporations
8. Separation of ownership and management

Question 30

Large Company

Answer 30

• Generally publicly traded
• distinction of managers and owners
• Differences and rivalry between shareholders and managers
• Big topic is executive compensation because it affects shareholders. Shareholders are interested in capital gains and dividends
• Managers want salaries, pension benefits etc
• Why are the two parties in competition? the money has to go to one of them

Question 31

Small Company

Answer 31

• usually not publicly traded and exempt from requirements of securities act
• Owners that are actively participating in management or outright labour of corp
• real problem refered to as “oppression of the minority shareholders”
• minority shareholder is “locked in and frozen out” - they cant sell their shares exept at a very discounted price because no one wants to pay to be a minority shareholder, but are frozen out because they have no influence on management
• usually solved by shareholders agreement: gives them protection

Question 32

Shot Gun Clause

Answer 32

Most important clause is the shot gun clause: make an offer to the other party at a price per share and its their choice of whether they buy or whether they sell out
However it isnt always fair:
- if one party is undercapitalized, you cant realistically buy them out - you can only buy, no one wants to work for someone who dosent have money
- in those cases the price per share will be determined by someone else so that the undercapitalized will be considered

Question 33

Limitation on the seperate entity principle

Answer 33

Courts are kinda against meddling with this principle because it has resulted in a great deal of prosperity

to ignore this principle means to pierce the corporate veil
they will do it in:
1. taxation situations
2. for residence of the corporation and the controlling shareholders
3. agency principles
4. in certain situations of fraud, in particular the “Patton case” - they wont allow the separate entity principle to be an instrument of fraud

Question 34

Methods of incorporation

Answer 34

1) royal charter corporation - created through use of royal prerogative (no longer formed)
2) special act corporation (statutes) - for major public works (ex MPI)
3) General acts
a) english system of registration
b) letter paten system
c) certificate of incorporation

Question 35

How to organize company in manitoba

Answer 35

1) corporate name search
2) create and submit articles of incorporation (includes name, head office, nature of business, types of shares, first directors, incorporators)
3) $300 fee

Question 36

Component parts of constitution

Answer 36

1) articles of incorporation: if you want to change it you need 2/3 majority of every class of shares (entrenched)
2) bylaws - not entrenched and instead can be changed by simple majority of shareholders
- changes board of directors
- quorums for director and shareholder meetings
- notice provisions and votes
- officers of corporations
- signing authority
- fiscal year of corporation

Question 37

3 Types of participants of corporation

Answer 37

Shareholders: investors. purchase shares with money or capital
Directors: charged with management of the corporation, they are agents through which the corporation acts
Officers: run the corporation on a daily bases, elected annually

Question 38

Public vs Private Company

Answer 38

Under security act, public company is defined by not being what is defined as a private company