Week 11 Ch 24 Sole Proprietorships and Partnerships, Chapter 25 The Nature of Corporation and Its Formation

Joint Ventures

-Agreement between two or more parties to COLLABORATE on a SPECIFIC project -Each contribute resources (financial, expertise, assets or other) -Does NOT create separate legal entity -Contractual -LIMITED duration of TIME; not a continuing activity like a partnership -Considered a collaboration/ extension of each parties operations -No fiduciary relationships Profits not retained: -distributed to each participant

Limited Liability; *LEADING CASE in corp law; -Salomon v Salomon & Co Ltd. 1896 Lord Halsbur -Exceptions to Limited Liability Rule; -WD Latimer Co Ltd v Dijon Investments Ltd.

-Corporation has separate legal person/existence (limit personal liability); Salomon v Salomon & Co Ltd. 1896 Lord Halsbury; -sole owner of corp (1 principal shareholder, director of company) -shoe business, it went into decline and eventually bankruptcy -trustee for bankruptcy said that he was personally liable and not just corp -corp was created ONLY to protect himself from liability -smaller court agreed -the higher courts appealed that it is a SEPARATE legal entity, and as a result Mr. Salomon should personally NOT be held liable *"corporate veil" PROTECTION for shareholders from liability Exceptions to the Limited Liability Rule/ Piercing the Corp Veil: *when you CAN PERSONALLY go after shareholders Personal guarantees: -defaults on loan, banks, suppliers may want security/collateral of PERSONAL ASSETS (may have no other recourse other than PG) Distributions to shareholder by insolvent corporation (requirement to repay): -Solvency test: entity cannot distribute shares and profits to shareholders, if insolvent and fund are needed to repay debts and creditors Shareholders who are also directors/officers Associated CCPC corporations (controlled by common shareholder) can only use the small business deduction once *Lifting corporate veil - where shareholder controls the corporation, control exercised to commit a fraud, must have caused plaintiff harm/damages -tax advantages only apply to ONE of businesses/ corporations (ex. If you control 5 companies, can only tax deduct for 1 company) -"lifting corp veil" even though limited liability, if shareholder commits FRAUD they are held liable (shareholders hide behind corp veil) WD Latimer Co Ltd v Dijon Investments Ltd: -did not pay benefits to workers compensation board -brought an action -corp veil is ONLY lifted where corp is VEHICLE to commit crime, engage in unlawful activity, if not shareholders are not responsible -court held principles was not fraudulent, no basis to lift corp veil *Under Environment Protection Act, if shareholder is responsible for enviro impairment, held personally liable *Under Taxation Gov act, if company fails to HST recover, director can be held liable *Under safety stds act, can be held liable *HAS TO DO WITH PUBLIC SAFETY, Govmnt, environment etc.

Termination of Partnership

-Express (explicit) term of agreement -If no fixed term then by notice, death or insolvency (implied terms in Act) -Dissolution by law on application - resulting from event making it UNLAWFUL/impossible for business to be carried on (ex. mental incapacity, material breach, etc.)

Implied Terms of a Partnership Agreement (11) -Rochwerg v. Truster Case

-Implied terms only apply if NOT already included in agreement!! (these terms are implied by Partnership Act, if no agreement) 1. Partnership PROPERTY must be held and applied by partners EXCLUSIVELY for purposes of partnership 2. All partners SHARE profits /losses EQUALLY 3. Partnership must INDEMNIFY (compensate) partner who incurred costs/ expenses in conduct of business of partnership 4. NO INTEREST on partner's CAPITAL; but CAN have interest on LOAN 5. No entitlement to remuneration for acting on business 6. Every partner entitled to MANAGE 7. ORDINARY business DECISIONS made by MAJORITY; changes in NATURE of partnership requires UNANIMOUS approval 8. ADDING partner requires approval of ALL other partners 9. cannot assign interest in partnership 10. Fiduciary duties (cannot be waived by agreement) - full disclosure of accounts/information; no secret benefits/commissions from any transaction involving partnership -Cannot be waived PURSUANT to agreement (cant force partners to LEAVE their rights, includes TRANSPARENCY, FULL disclose of info needed) (Rochwerg v. Truster): Acctg firm: -after one partner retired, discovered 1 partner was receiving secret benefits -while being a director (common for lawyers & accountants to sit in at board of directors) and entitled to compensation -he was receiving secret profit (stock options employee plan), did not inform them of this -after retirement when this was discovered, he was entitled to pay and distribute the funding equally 11. Duty NOT to COMPETE

Legal Nature of Partnership

-NO INDEPENDENT existence; not a legal entity separate from partners -partnership DOES NOT report its own losses, liabilities, profits etc. (NO SEPARATE ENTITY, although it can own its own assets) -ALLL items; liabilities etc. are attributed to PERSONAL partners statements -All income, losses, assets and liabilities attributed to, and the responsibility of, the partners *debts/profits ARE SHARED BY ALL PARTNERS EQUALLY -ALL PARTNERS FULLY LIABLE for losses, assets, liabilities etc. -each partner are PERSONALLY liable for credit claims etc. (no protection for each partner here w.r.t to liability) -Partnerships Act allows partnership to continue on death, retirement etc. of one of them -Partnership may "own" property, but individual partners have an interest in the property -Partnership creditors have FIRST RIGHT against partnership assets before personal creditors of individual partners -Partnership CAN SUE & BE SUED; however partners will be personally liable for payment/lack of any judgement

Liability of a Partner (in General Partnerships); -Agency => "apparent authority" -Joint liability

-Personal liability for debts of partnership -Every partner IS AN AGENT for OTHER PARTNERS, and can BIND the firm and its partners to contracts -EACH PARTNER IS RESPONSIBLE for ALL of partners lability -Agency can be RESTRICTED by agreement, but 3RD PARTY must be AWARE of restriction; subject to rule of "apparent authority" Apparent authority: refers to a situation where a reasonable third party would understand that an AGENT had AUTHORITY to act. This means a PRINCIPAL is BOUND by the AGENT'S actions, even if the agent had no actual authority, whether express or implied. Joint liability -each partner liable for FULL amount; partner who pays excess entitled to reimbursement from other partners (if solvent!) Ex. Owe $50,000 and they default on loan, ALL partners are liable, if some partners are insolvent, the partner that can pay is required to pay FULL amnt, and this partner can seek for compensation -however if other partners are insolvent this is not as viable -*MUST ASSESS CREDIT WORTHINESS of partners before entering into partnership, so that they are ON THE SAME level of financing available and if there is a default, one partner will not be required solely to pay back full amnt

3rd type or partnership, 2nd NON general; Limited Liability Partnerships (LLP)

-Primarily used by accounting and law firms (permissible firms) -Used to AVOID non-negligent partners for being liable for losses caused by negligence of negligent partner -Recall that in a general partnership EACH partner is liable for the debts and obligations OF THE FIRM including negligence claims -An LLP PROTECTS a PARTNER from the NEGLIGENT acts of ANOTHER partner or employee NOT UNDER his/her SUPERVISION -Partner remains liable for own negligent acts -Firm assets subject to claims, but not personal assets of non-negligent partners -NOT PERSONALLY liable ONLY for negligent claims -Protection of partners only extends to negligent acts; does NOT APPLY to OTHER TORTS, breach of trust or contractual liabilities (ex. rent, defamation etc.) -Must have a WRITTEN agreement establishing the LLP -LLP MUST REGISTER its firm name -Words "limited liability partnership" or abbreviation "LLP" must be PART of name -LLP can only carry on business for purpose of practising an eligible profession -*LLP and limited partnership NOT the same; differences: - limited partnership MUST HAVE at least 1 GENERAL partner that has UNlimited liability; not so in LLP - limited partners cannot manage; LLP can manage - limited partners NOT restricted to PROFESSIONS; LLP restricted to professions

Incorporation Co'nd

-Shareholders agreement; -agreement BTWN shareholders (cover same topics; names of parties, rights of transfer, contingency for deaths, insolvency actions etc.) By-Laws; -general operating rules (usually By-Law #1), and specific director authorizations for certain significant decisions made OUTSIDE the NORMAL COURSE of business (ex. major borrowing, amalgamation, sale of the business ); first adopted/approved by the board of directors, then ratified at a shareholders meeting Minute book General: sets out RULES of corp, FUNDAMENTAL Ex. # of directors, eligibility for Board, how many ppl are on board, how to vote (by proxy, ballad, electronic, show of hands, what is method), shareholders meetings and factors Specific: if certain activities come up for ex. Sale of shares MUST get shareholders approval Board of directors pass sale Present bylaw to meeting with shareholders and hold vote -book/binder: Minute book all IMPORTANT parts of corp; tab for bylaws, ledger of who shareholders are and how much they are paid, share certificates, board of directors, who they are, minutes on meetings, jurisdiction of corp (provincial or federally incorp), corporate seal etc.

2nd Business entity; Partnership; -"relationship" -Pinteric v. People's Bar & Eatery Ltd. -AE Lepage Ltd v. Kamex Developments Ltd -"carrying on a business" -"with a view to a profit"

-The relationship between 2 or MORE persons carrying on a business WITH a VIEW to a PROFIT *(signing of partnership DOES NOT NEED to be done for a partnership to EXIST, the minute they start business it is a partnership) *Governed by Partnerships Act (Ontario), common law and agreement "relationship": -usually contractual, but MAY BE IMPLIED based on behaviour Pinteric v. People's Bar & Eatery Ltd.; -two individuals ran sports bar -relationship of employer and employee or partners (both would be entitled to revs)? -no written agreement -court ruled it was a Partnership -looked at conduct of business; found both parties were withdrawing and taking advances of business, based on profitability of business) -one partner NOT taking a fixed salary, typical of employee/employer relationship -regardless of what parties call their agreement; fact they are a partnership according to their CONDUCT & TRUE relationship of parties ruled by court AE Lepage Ltd v. Kamex Developments Ltd.; -group of investors bought piece of investment property -one investor signed listing agreement with agent -agent sued brought action for commission, to ALL investors for commission owing on property -one partner can BIND the others to the listing contract (or be sued), even if they didn't physically sign it -court held they WERE NOT a partnership, NOT a group of ppl carrying on business together, but merely CO-OWNERS of a property, as a result only the investor that signed commission was held liable "carrying on a business" -depends on circumstances; ISOLATED TRANSACTIONS undertaken jointly usually not a partnership (FINITE ENDING IN SIGHT); usually a CONTINUING ACTIVITY "with a view to a profit" -usually requires SHARING of PROFITS; courts also look at how profits divided, whether capital contributions made, whether party participated in management Ex. An accounting firm that may not be a limited liability partnership Ex. NOT a partnership: a group of investors purchasing a development property with 48% a view to reselling it at a profit (continuing activity)

1st Business entity; Sole Proprietorship

-UNincorporated business owned by a SINGLE individual (NOT A CORP) -Comes into existence once individual STARTS CONDUCTING business -Subject to SAME REGULATIONS that apply to all forms of business (ex. Occupational Health and Safety Act, Employment Standards Act etc. ) -May need licence to carry on particular business (ex. electrician) -Business income reported on personal income tax form -Personally liable -Business NAME MUST be REGISTERED Ex. Joe Smith's Carpeting If it's the owners own name they might not need to register -NOT A DISTINCT LEGAL ENTITY (business is TIED PERSONALLY to owner) -*as a result any CLAIMS AGAINST BUSINESS is a CLAIM AGAINST OWNER personally -any income, losses etc. from business is on the PERSONAL income statement & tax sections of owner -benefits: lower costs, easier to start business

1st Type of NON GENERAL partnership; Limited Partnerships

-prev slides are assuming GENERAL partnership (EQUAL LIABILITY and EQUAL classification) -Allows investors to share in partnership profits WITHOUT RESPONSIBILITY for partnership LOSSES -Must have 2 types of partners: 1. AT LEAST one GENERAl partner, and 2. at least one LIMITED partner General partner: -UNlimited (FULLY) liability, makes mgt decisions Limited partner: -liability LIMITED to AMOUNT PAID into partnership (ex. they can lose what they invested, but are not liable for more) -used to help fund/invest -Limited partners: CANNOT BE ACTIVE in management of business or will be liable; for this reason not an attractive model some for investors; usually used for tax planning purposes

Corporations vs. Partnerships (7 factors considered whether to incorp or form partnership)

1. Limited liability of corporate shareholders; -corporation liable for IT'S OWN debts; shareholders can only lose price paid for shares -HUGE PROTECTION for personal assets of shareholders (provided no personal guarantees given); *MAIN ADV of a corporation; In general partnerships, partners personally liable. 2. Transfer of ownership: -corporate shares more easily transferred than a partnership interest, since may not need to deal with creditors 3. Management: -separation of ownership and management; general partnership requires all partners to be involved; with corporations, shareholders only involved if elected directors of corporation; an advantage if there are a large number of investors 4. Duty of Good Faith (Fiduciary duty): -applies between partners; not between shareholders 5. *Continuity: -death of partner may dissolve partnership; -CORP DOES NOT DIE; continues INDEFINITELY unless dissolved by agreement of shareholders, court order etc. 6. *Taxation: -corporation taxed separately; income first taxed at corporate level, second once shareholder receives dividend; *DOUBLE taxation offset by REDUCED TAX RATES (can DEFER taxes to next yr); corporate tax rates low; small business deduction; benefit of tax deferral and reduced corporate tax rates; -partners record taxes on PERSONAL income tax report *another main advantage of a corporation 7. Start-up costs and maintenance costs: -incorporating, reporting and annual maintenance costs are much higher for a corporation than a partnership or sole proprietorship

Types of Business Corporations (3)

1. Private corporations: -corporations with a RESTRICTED number of shareholders that are PROHIBITED from selling their shares to the public; usually small and medium sized businesses; small number of owners; usually the shareholders are also the managers; may go public (dep on share value and public) 2. Public corporations: -corporations that OFFERS and ISSUES shares to the PUBLIC (publicly traded corporation/ distributing corporation); -subject to additional regulation under the Securities Act (disclosure, SIGNIFICANT prospectus, audited financial statements) -if want to stay deemed a Private corp (VS Public corp): 1. LESS than 50 shareholders 2. RESTRICTION on shares; cannot be transferred unless have approval from shareholders (consent from Board of Directors) 3. must have a PROHABITION that shares CANNOT be issued to sale to the PUBLIC (if they are sold to public, become a public corp) *if public then SUBJECT to Securities Act Fine line: Ex. Winery investments; highly attractive/sexy investment, Wineries may ask family members etc. which could be deemed a PUBLIC share (if degree of sophistication of parties not there, special relationship, how remote was relationship etc.), and if they are NOT given proper info can bring cause of action and Directors can be held liable, if person is constituted as the public 3. Professional Corporations - formed by one or more members of a profession; -shareholder restrictions; name must include name of professional, profession and words "Professional Corporation" (ex. Dr. Jane Smith Medicine Professional Corporation"); -professionals REMAIN PERSONALLY LIABLE for negligence or misconduct (not other creditors); mainly used for tax advantages -specific to professions -Ex. Lawyers can corporate -historically didn't want to let professions corp bc didn't want ppl to limit their liability of negligence and tort -most professions are now allowed to incorp, but they ARE diff in that they DO NOT BENEFIT from limit liability (held personally liable and not protected for claims of negligence) Benefits: 1. Tax deferral allowed (leaving money in corp) & tax breaks associated (differences for LLP; all income in partnership is recorded personally, for incorp can leave money in incorp and recognize income later on TO DEFER TAXES) 2. Although liable to clients and patients, can't sue shareholders of corp

Priority of Payment on Liquidation (4)

1. Secured creditors: *always have 1st priority; registered mortgage, entitled to property, have RIGHT to assets secured (collateral pledged) 2. Unsecured creditors: -arms length, 3rd party creditors, certain gov claims, unsecured claims 3. Preferred shareholders (INVESTMENT shares): -pref shareholders have VOTING rights, can purchase shares of company that have FIXED value, entitled to FIXED dividend to shares, entitled to receive assets of liquidation of company IN PRIORITY of the common shareholders 4. Common shareholders (EQUITY SHARES): Value of shares is WORTH the same as the business -ex. If company worth $100, then shares worth $100 -always receive residual of profits LAST

Forms of Carrying on a Business (3)

1. Sole Proprietorship 2. Partnership 3. Corporation (types of business structures/ business legal entity) -parties and their interests/goals determine types of business

Incorporation

Articles of Incorporation (creating document); includes details: - NAME of corporation (must be available and include a corporate ending (Limited, Ltd, Incorporated, Inc, Corporation); -DISTINCT name (can be difficult), to avoid "passing off" frauds -may use a numbered company (e.g. 345456 Ontario Inc) -identify itself as a corp, MUST have ending or last digits provided from MINISTRY (may not want a name), so ppl know they are DEALING/ doing business with a corp (or else NO PROTECTION under corp veil) -can file an AMENDMENT to make changes to name etc. later on - registered office address -all info is a MATTER OF PUBLIC RECORD (can look up location of HQ, etc.) -*authorized shares/capital; and RIGHTS AND PRIVILEGES attaching to EACH CLASS of shares -(common shares fluctuates value WITH company, preff shares are FIXED share values class a, class b etc., entitled to DIVIDEND rate (allocation of profit after paying other parties) HAVE DIFF ATTRIBUTES may be entitled to diff div rates, retractable, etc.) -restrictions on transfer; -no transfer of shares WITHOUT CONSENT of holders -restrictions on business activities; -can LIMIT the scope of business activities Ex. If engineering shares, can only be used for engineering company -number of directors

Creation of a Partnership

By AGREEMENT -express OR implied Enter into LONG FORM agreement that sets out terms/duties of relationship: -names of partners, and firm -nature of business -term, termination (typically INDEFINITE term) -rules for adding and removing partners (removal of partner, committed an offence what are the rights and remedies of other partners?) -death, incapacity, retirement (what happens if partner pass away? Does the partners debts get paid by estate? If they have GREAT value how can other partners come up with $ to pay partner's estate) -management and decision making -contributions (bring DIFF assets to agreement; ex. Bringing capital, expertise, client base etc. agreement sets out how often, how these are addressed etc.) -profit sharing -dispute resolution Clause (speaks to arbitration, mediation that would involve a dispute) Independent legal advice: -Required, since they require significant amnt of financial info and for a INDEFINITE time, independent in the sense that they are SEPARATE from any of partners and distinct from all *NO FORMAL requirements for registration of a general partnership -*even if no written signed agreement, Partnerships Act ALWAYS APPLIES

Chapter 25 The Nature of Corporation and Its Formation Defs

Corporation: a legal person formed by incorporation according to a prescribed legal procedure legal person: an entity recognized at law as having its own legal rights, duties, and responsibilities limited liability: the liability of shareholders is limited to the amount of their capital contributions associated corporations: corporations that are related either (a) vertically, as where one corporation controls the other (parent-subsidiary), or (b) horizontally, as where both corporations are controlled by the same person (affiliates) royal charter: a special license given by the Crown to form a corporation for the purpose of carrying on a particular activity special Acts of Parliament: legislative acts creating a specific corporation memorandum of association: a document setting out the essential terms of an agreement to form a corporation certificate of incorporation: a certificate that a corporation has come into existence letters patent: a document incorporating a corporation, issued by the appropriate authority and constituting the "charter" of the corporation articles of incorporation: founding corporate document, often referred to as the charter or constitution of the corporation Bylaws: the internal working rules of a corporation private companies: corporations with a restricted number of shareholders prohibited from issuing their shares to the general public distributing corporation: a corporation that issues its securities to the public; also referred to as an issuing corporation, reporting issuer, publicly traded corporation, or public corporation professional corporation (PC): a special type of business corporation that may be formed by members of a profession authorized capital: the maximum number (or value) of shares that a corporation is permitted by its charter to issue issued capital: the shares that have been issued by a corporation paid-up capital: the shares that have been issued and fully paid for stated capital account: the amount received by a corporation for the issue of its shares Share: a member's proportionate interest in the capital of a corporation par value: a nominal value attached to a share at the time of issue no par value shares: shares that have no nominal value attached preferred shares: shares carrying preferential rights to receive a dividend and/or to be redeemed on the dissolution of the corporation for a fixed price Bond: a document evidencing a debt owed by a corporation common share: a share carrying no preferential right pre-emptive right: the right of a holder of shares to protect his percentage ownership in the company by buying the same percentage in any new issue of shares cumulative right: the right of a preferred shareholder to be paid arrears from previous years before any dividend is paid on the common shares participating right: the right of a preferred shareholder to participate in surplus profits or assets of the corporation in addition to the amount of the preferred dividend or redemption price

Corporate Capital

Equity; (money raised by issuing shares) vs Debt; (money raised by borrowing Shares: - a person's INTEREST in the CAPITAL of the corporation Authorized capital: -MAX # of shares corporation AUTHORIZED to issue (ex. 10,000 Class A Preference Shares) Issued capital (paid-up capital): -shares that have been ISSUED Stated capital account: -the amount RECEIVED by corporation FOR ISSUANCE of its shares *Different classes of shares (have DIFF RIGHTS & ATTRIBUTES) -may authorize diff classes of shares: but IDENTIFY by names and identify attributes and conditions and classes tied to shares (ex. Class A, Class B mean nothing by name, need to LOOK AT attributes associated; voting rights? Which class gets repaid first?)

Case Study -Ashely's 2 Restaurants

Facts: -2 business locations 25 km apart, "Ashley's Restaurant" and "Ashley Too" -Mother invested 50K at start; mother not to be involved in business decisions; mother promised good return -Ashley wants to stay in complete control -Also promised chefs profit sharing after 5 years Questions: -How many corporations should she incorporate? -Should she incorporate under federal or provincial legislation -Does Ashley have to decide on name now? -What classes of shares should be issued with what rights and restrictions? 1. How many corps should be created and why? Two corps: -if one corp fails, the other can continue to operate -protection of assets (if one restaurant is sued and subject to creditor claims, the OTHER WOULD not be) -2 corp to avoid UNLIMITED liability -tax advantages (if 1 company; then losses of one place can be APPLIED to other and income is deducted LESS) -look at cost point of view for incorp (paying cost ON ONGOING ANNUAL CONTINOUS BASIS, file separate tax returns, minute books for each) -restaurants have a HIGHER fail rate and can be short lived (potential to liability); higher success rate if one restaurant is doing well, put start up one separate 2. Provincial or federal: -restaurants within same jurisdiction 25 km apart, if no intention to expand business then provincial is fine -if she wants to franchise or create chains then incorp federal -what are her short term/ long term goals and plans? -CAN CONVERT FROM provincial to federal 3. Does she decide on name now? -she does NOT need to decide on formal name now, however she needs to have a NUMBERED company to be registered -however, better to decide sooner, because her name might be taken by the time she makes a decision 4. Classes/ types of shares: -create CLASS of shares (could be called class A pref shares), then DETERMINE attributes associated -Ashley's mother should have the attribute of shares of NO VOTING RIGHTS, and as an investment, wanting a fixed amnt of returns, option to be RETRACTABLE (redeemable shares), then she should get a fixed VALUE SHARE (could be called anything, look at ATTRIBUTES of share) with GENEROUS dividend rate (ex. 6% or 7% BETTER than GIC 2% or 1% interest) and she would get a good ROR (but could be MORE RISKY), her mom should be given PRIORITY for protection (she is paid before others), look at being a secured creditor, or preferred creditor, or preferred shareholder *Rights for shares for chiefs: -to award chiefs for success of business and help business grow further -equity shares not effective (fluctuate with company) -give employees pref shares with NO voting rights, div rate is declared each yr but BASED ON FORMULA OF % NET PROFIT AFTER TAX each yr in form of dividend, only receive div AFTER 5 yrs of working with her -if they become shareholders of company, but if employment is terminated then RECALLABLE/ REEDEMABLE OPTION of share

Case Study -Adders LLP

Facts: -Accountant firm LLP (15 CPAs, 200 employees) -Norne Inc. is major client -Sr partner (Counter) supervised account until 2 yrs ago -Recently young accountant (Turner) handling account; Sr still supervises -Client's CFO and Turner commit fraud -Client sues LLP, Counter (Sr partner) and all other partners Consider liability of (a) Adders LLP (b) Counter (c) other partners in firm: Analysis: Relationship of parties: -acctg firm Adders LLP (partners and employees) -Client Norne -Counter What are the possible causes of action that could be commenced by any plaintiff to sue defendants? -negligence (duty of care not there) -breach of contract btwn acctg firm and client (contract EXISTS, elements of formation there) -breach of fiduciary duty/faith to their partners and clients (tort of breach of trust) Adders LLP: liable for negligence? Yes the firm itself would be sued, breach of duty of care, partners did NOT supervise employee Turner (only NOMINALLY/very little supervision) Liable for breach of contract? Yes, contract btwn firm and client Liable of breach of trust & fiduciary duty? Yes vicarious liability; employers liable for acts of employees (applies to negligence as well) Counter (partner of firm): -LLP; protects partner from NEGLIGENT acts of another party, that is NOT under their control -personal assets CANNOT be claimed under negligent acts (protection of partner) -However, Counter IS LIABLE for negligence, since employee was under SUPERVISION of Counter and still liable for breach of trust and breach of contracts cause of actions *other limited liability partners not liable for negligence claims BUT STILL HELD liable for other causes of action like Counter and Adders Firm

Case study: Customer slips on snow

Facts: -CBCA (fed) corporation -All shares owned by one person, who is also the sole director, acts as GM and supervises day-to-day activities -Customer slipped on snow; business owner new of danger but did NOT remove danger -Customer slips, falls and breaks leg; suffers permanent disability -Corporation may go bankrupt; but shareholder wealthy Does customer have a claim against shareholder/owner? Analysis: -faulkner would argue SEPARTE entity legal entity (distinct from shareholders) -when can lift corp veil? EXCEPTIONS: -personal guarantees etc. To GO BEYOND veil: purposes of PERPETRATING wrongful act, vehicle for fraud or tax evasion (see case WD Latimer) *matters of Public safety CAN ONLY be lifted if: Control of corporation Must be for intent of fraud etc Must be cause of plaintiff's injury Hills arguments: -in this case individual WAS in control of corp, supervised and KNEW of dangerous conditions, controlled premise, committed breach of duty of care, was cause of plaintiff's injury (go BEYOND negligence by piercing corp veil) -sue Folkner DIRECTLY for negligence (his personal CAPACITY; duty of care, breached, cause damages and was a direct result), bring a PERSONAL claim against him based on negligence, employee could also be liable other than vicarious liability of employer *facts omit remedy of insurance (Oakdale would most likely have insurance)

Choice of Jurisdiction

Federal; (Canada Business Corporations Act - CBCA) or provincial; (Ontario Business Corporations Act - OBCA) Considerations: - certain business activities are federally mandated (ex. banking) - is business carried on across the country or only locally - federal may have additional or more onerous filing requirements Internationally: -parent company incorp; then divisions are created in diff jurisdictions and owned by parent corp

3rd type of Business entity; Corporations

Most COMMON business entity -*A SEPARATE and DISTINCT "LEGAL person" (SEPARATE FROM OWNERS, referred to as "it", can sue it etc.) -Solely a creation of statute -ONLY EXISTS once corp is registered under Ministry (can incorp provincially in ON, or incorp federally under Canada) -Different types of corporations: publicly owned, municipal, charitable, business etc. *Only studying business corporations

Liability of a Partner (in General Partnerships) Co'nd -(Bet-Mur Investments Ltd. V. Spring) -(Public Trustee v. Mortimer)

Personal liability: Person that is NOT a partner, but ALLOWS THEMSELVES to be represented as a partner may be held LIABLE as a partner (Bet-Mur Investments Ltd. V. Spring): -senior lawyer hires younger lawyer as an employee -senior lawyer has client Bet-Mur does mortgage transactions with them -Bet-Mur deposits funds to senior lawyer -younger lawyer stole money -Senior lawyer was charged and imprisoned -Senior lawyer was INSOLVENT -court held even though younger lawyer seemed like a partner (their name on letterhead, name on the door etc.), they were NOT a partner -court looked at if the client RELIED on this info and found that they hadn't -Retired partner may be liable if 3rd parties reasonably believe they are still a member of a firm, unless 3rd party receives actual notice -Liability in Tort - negligence etc. Liability for breaches of trust and fiduciary duty -go BEYOND negligence (theft), where other partners may be held liable (atypical position of courts) -partners have a FIDUCIARY duty to each other (duty to DISCLOSE info, not take secret profits, be FULLY TRANSPARENT) (Public Trustee v. Mortimer): -law firm with Mr. Mortimer stole $200,000 from estate Public Trustee -acting as EXECUTOR for estate and LAWYER (admin) -tried to hold other parties accountable he stole from estate, but lawyers argued Mr. Mortimer had nothing to do with him being a lawyer -however, court held that it is NOT uncommon for a lawyer to also take on role of EXECUTOR and therefore constituted breach of trust and creates fiduciary duty under Tort & negligence

Chapter 24 Sole Proprietorships and Partnerships Defs

sole proprietorship: an unincorporated business owned by a single individual Partnership: the relationship between two or more persons carrying on a business with a view to profit Firm: collective reference to the partners in a partnership partnership agreement: an agreement between persons to create a partnership and (usually) to set out the terms of the relationship joint liability: the situation where each of a number of persons is personally liable for the full amount of a debt limited partnership: a partnership in which some of the partners limit their liability to the amount of their capital contributions general partner: a partner in a limited partnership whose liability is not limited limited partner: a partner in a limited partnership whose liability is limited to the amount of her capital contribution limited liability partnership: a partnership in which non-negligent partners are not personally liable for losses caused by the negligence of a partner contractual joint venture: a joint venture effected by agreement without the creation of any separate legal entity equity joint venture: a corporation formed, and jointly owned, by the parties to a joint venture for the purpose of carrying on the venture declaration of trust: an agreement that establishes a trust and designates the trustees Unitholders: beneficiaries of an income trust