Week 9: Legal Formation, Corporate Structures, and Commercial Transactions

Question 1

What is the difference between Individuals and Persons?

Answer 1

• Individuals are humans

- Persons includes corporations, societies, banks, governments, and individuals, all with legal personality

Question 2

What is the difference between Limited Liability and Unlimited Liability?

Answer 2

• Limited liability, only money invested in business and business assets are available to creditors
• Unlimited liability, personal assets are also available to creditors (ex. House, car)

Question 3

What is a Business?

Answer 3

Generally considered an enterprise organized for the purpose of making a profit through a trade or service

Question 4

What is an Independent Venture and a Corporate New Venture?

Answer 4

• Independent venture are not controlled by parent company with restricted resources
• CNV are created by parent company to exploit new opportunities or establish subsidiary companies

Question 5

What are Franchises?

Answer 5

Governed by licence (contract) between the franchisor and the franchisee in exchange for “goodwill”

Question 6

What are 3 considerations when choosing a Business Structure?

Answer 6

1. Limiting personal liability
2. Optimizing personal and business tax positions
3. Controlling decision-making authority

Question 7

What are the 3 types of Business Organization?

Answer 7

1. Sole proprietorship
2. Partnership
3. Corporation

Question 8

What are some characteristics of Sole Proprietorship?

Answer 8

• Consists of one individual
• One level of tax
• No separate legal entity with unlimited personal liability
• Can enter contracts and employ employees
• Management decisions are not shared

Question 9

What are some characteristics of a Partnership?

Answer 9

• A relationship between two or more persons in business to gain a profit
• No separate legal entity with unlimited joint and several liability
• One level of tax
• Can enter contracts and sue or be sued in the firm name
• Fiduciary duty between partners for full information disclosure

Question 10

What are some characteristics of Corporations?

Answer 10

• Large number of owners can invest in single business activity
• Created and governed by Federal or Provincial legislation
• Separate legal entity from owners with separate legal rights/obligations/liabilities
• Two levels of taxes, corporate and personal

Question 11

What are Constating Documents?

Answer 11

Articles of incorporation and bylaws defining nature and scope of business, setting limits on director’s decision-making authority and setting out classes of shares

Question 12

Who are Directors?

Answer 12

People with defined decision-making power to run the business

Question 13

Who are Officers?

Answer 13

People who manage the day to day operations of the business

Question 14

What are the 3 types of Deal Structures?

Answer 14

1. Asset purchase
2. Share purchase
3. Amalgamation

Question 15

What is the difference between Asset and Share purchase?

Answer 15

• Asset; all assets are value then sold with proper documentation and taxation
• Share; acquire all assets including intangibles (complete transfer of ownership)

Question 16

What are the 6 transaction steps?

Answer 16

1. Investigation/due diligence
2. Negotiating/deciding on the deal structure
3. Drafting and signing the agreement
4. Preparing for closing
5. Closing
6. Closing procedures