Types Of Business And Electronic Business Risks

Question 1

What are the issues with Sole Propietorship?

Answer 1

It raises concerns about personal liability.

Question 2

What are the issues with partnerships?

Answer 2

It raises issues about the duties of partners including fiduciary duties, the different types of partnership and your liability in each situation.

Question 3

What are the issues with corporations?

Answer 3

It raises issues of limited liability, greater flexibility for raising money, but with various corporate governance and shareholder obligations.

Question 4

What are the issues with agents and obligations?

Answer 4

Anyone who is your “agent”, including employees, can create obligations and risks for you and your business.

Question 5

What are the issues with electronics and Online business?

Answer 5

Operating your business online can create different risks such as which rules apply to your business, online contracts, contract creation and enforcement, and determining which rules apply to the contract.

Question 6

What are the main duties while running a corporation?

Answer 6

Fiduciary duty and duty of care.

Question 7

What is the duty of care?

Answer 7

Is a legal concept that refers to the obligation to exercise a level of care towards others, which can be reasonably expected in the circumstances, to prevent harm or injury. This duty is a fundamental aspect of negligence law, where a person or organization can be held legally responsible for harm caused to another due to failure to meet this standard of care.

Question 8

What is business judgment rule?

Answer 8

Is a legal principle in corporate law that helps to protect directors and officers of a corporation from liability for decisions made in the course of their duties, as long as those decisions are made in good faith, with the care that an ordinarily prudent person would reasonably be expected to exercise in a similar position, and in a manner they reasonably believe to be in the best interests of the corporation.

Question 9

What is due diligence?

Answer 9

the care that a reasonable person exercises to avoid harm to other persons or their property.

Question 10

When are businesses held accountable for environmental harms?

Answer 10

Only when they fail to invest in environmental protection policies and training.

Question 11

What are the 3 main forms of business

Answer 11

Sole propietorship, Partnerships, and Corporations.

Question 12

What is the most flexible type of business?

Answer 12

Corporations, but they come with shareholders and governance requirements.

Question 13

Issues to consider when deciding to start a business?

Answer 13

• What type of business can I start?
• What type of business should I start?
• How many people?
• Personal liability?
• Costs and time to create business?
• Do I need to raise money?
• Tax differences?

Question 14

What is the liability of the sole propietorship?

Answer 14

Unlimited personal liability. If things go wrong, then you are liable and the plaintiff can go after your personal assets.

Question 15

How is the insurance of a sole propietorship?

Answer 15

It has limited protection and it is costly.

Question 16

How is are the taxes for sole propietorship?

Answer 16

Taxes are typically higher since personal income taxes rates are usually higher than corporate tax rates, but they can claim expenses.

Question 17

What is the process to start a sole propietorship?

Answer 17

Is simple, only need to register business name and pay taxes such as PST/HST.

Question 18

What are the 3 different types of partnerships?

Answer 18

General, Limited, and Limited Liability

Question 19

How are general partners?

Answer 19

Have unlimited personal liability and fiduciary duties to each other (loyalty, fairness, avoid conflicts of interest)

Question 20

How are limited partners?

Answer 20

Are investors where they are only risking their investment, and they cannot participated in the day to day decisions, if they do they become general partners.

Question 21

What are limited liability partners?

Answer 21

Partners are not liable for partners’ mistake, only their own mistakes and negligence. It’s normally for professions like law or accounting.

Question 22

Wat is the process to set up a partnership?

Answer 22

Typically through a contract, but even if you do not create a partnership agreement, if you act like a partnerships the law will assume you are a partnership.

Question 23

What is a corporation?

Answer 23

A corporation is a legal entity that is separate from its owners, created to conduct business. It can own property, enter into contracts, and is liable for its debts, while offering limited liability to its shareholders.

An institution (created by law) that is separate from the shareholders who create it, so if things go wrong, the corporation (and NOT the individual shareholders/owners) is responsible.

Question 24

Why type of liability does a corporation have?

Answer 24

Limited Legal Liability. Shareholders, Directors, and Management have no personal liability so the creator of the business or its shareholders are not at risk for personal liability and this also makes it easier to raise money/capital. (Note lenders such as banks still usually as for personal guarantees).

Question 25

What is the purpose of corporations?

Answer 25

It gives businesspeople and investors (including shareholders) incentive to create a business without being concerned that they will be personally liable and ruined if something goes wrong.

Question 26

What are the types of corporations?

Answer 26

• Broadly held (public)
• Closely held (private, family firms)

Question 27

What is the process to create a corporation?

Answer 27

• Registration of articles of incorporation either provincially (BC) or nationally (Canada) and creation of shareholder agreement.

Question 28

Who runs the corporation (governance)?

Answer 28

Directors, Officers/Management (CEO, CFO, etc.), shareholders

Question 29

Which are the management duties?

Answer 29

• Fiduciary Dury: the duty of the Officers and Directors of the corporation to act honestly and in good faith with a view to the best interests of the corporation (section 122 (1)(a) of the Canadian Business Corporations Act (CBCA)
• Duty of Care: Every director and officer of a corporation in exercising his powers and discharging his duties shall…exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances (see s.122 (1)(b) CBCA)

Question 30

What is Lifting Corporate Veil?

Answer 30

When owners, shareholders or directors of the business act negligently or fraudulently, courts will look deeper than the business judgement and may find personal liability.

Question 31

When will courts turn aside the business judgment rule and lift the corporate veil?

Answer 31

When Directors and Officers (Management) (1) fail to abide by statutory duties like reporting through prospectus and holding annual meetings (2) breach their fiduciary duty to the corporation or (3) fail to act according to their duty of care to do their job with care, diligence and skills that a reasonably prudent person would expect in the circumstances

Question 32

What is then main obligation corporations have with their shareholders?

Answer 32

Corporations (through the Directors and Management) are expected to act in the overall best interests of the corporation, but they are also expected to maximize shareholder value (balancing act)

Question 33

What are other corporations duties with their shareholders?

Answer 33

Corporations have other duties to shareholders such as ensuring voting rights and paying out dividends when these voting rights have been violated

Question 34

What are some remedies shareholders can take when corporations fail to respect shareholders’ rights?

Answer 34

1. Oppression Remedies
2. Dissent actions and pre-emptive rights for minority shareholders
3. Representative or derivative actions when corporation has been wronged (not just shareholders). (When decisions are not made on corporations interest. Ex. Merger, acquisition, etc).

Question 35

What is the purpose of laws for bankruptcy?

Answer 35

To make it easier to deal with paying creditors and debts of corporations and consumers.

Question 36

What is an agent?

Answer 36

An employee or independent contractor that represents you (principal/employer) in dealing with a third party
Examples: lawyers, accountant, real estate, boards

Question 37

What are the duties of agents?

Answer 37

Fiduciary duties and best interests