Types of Business + Corporations (Ch 13-14) 1.

Sole Proprietorship Individual carries on business alone No separate legal entity Unlimited personal liability o Vicarious liability for tort of EEs No protection of shareholders Must comply w/ govt regulations o Avoid restricted/legal activities o Meet zoning bylaws o Comply with workers compensation, employment insurance, and income tax regulations 2. Partnership Individual carries on business w/ partner (s) Regulated by Partnership Act o Owning property in common o Sharing gross return from business activity equally o Expenses reimbursed by partnership o All partners have right to participate in management o *No right to salary or wages o Major changes must have unanimous agreement o No right to assign partnership status w/o consent of all partners o Rights of partners can be modified by K Created o Inadvertently (implied from conduct) o By agreement (K relationship, oral or written; containing all elements) o Estoppel applies to representations that partnership exists End of Partnership o Dissolution intention (only needed by 1 partner to end relationships) o Death of a partner o Bankruptcy of 1 partner o Agreement o Court, if business deemed illegal ** Public notice must be given to escape further liability Partners are agents of each other o Agency law applies to partners o Contract made by 1 binding to all Vicarious liability o All liable for tortuous activity of partner or EE Unlimited personal liability o Personal assets may be used to satisfy victims o 3rd party can collect from any partner No protection of shareholders Some tax advantages Fiduciary Duty of all partners o Account for all profits o Dont use partnership property for personal benefit o Cannot compete with partnership o Disclose all info & not use it for personal gain Limited Partners o Liable only to extent of their investment o Must follow provisions from Act o Avoid risk of being considered general partner by

Registering as limited Refrain from participating in decision making

3. Corporation Can be owned by one individual or by two + (1)Separate legal entity (2)Limited personal liability (of management & officers for act of corp) (3) Management & officer have duties + responsibilities o Duty of care o Fiduciary duty (4) Courts can lift corporate veil if management/officers act illegally or negligently (5) Corps raise $$ through shares, loans, bonds (6) Corps have shareholders to whom duty is owed (7)Rules governing corps similar across Canada but different around the world Advantages: Limited liability o Unless directors/officers give personal guarantees for loans o Or courts lift corporate veil o Shh protected from claims against corp Tax Advantages Succession o Corp continues after death of shareholder (s) o Shares can be transferred at will Shh have no duty to company Shh elect directors who appoint managers (removed from daily operation) Easier to raise capital (more sources and shareholders) Disadvantages: More expensive to create and more potential for litigation/lawsuits Position of minority shh is weak Types of corporations 1. Closely-held Corp a. Few shh b. Shares not sold openly on stock market c. Private corporation (non-reporting) 2. Broadly-held Corp a. Public share offering b. More highly structured and regulated (reporting) Process of Incorporation 1. Registration o With government body (BC) o Registering memorandum of association & articles of association based on contractual relationship o Pay required fees o Certificate of incorp issued o Registrar has no discretionary right to refuse incorporation 2. Letters Patent granted by crown (Quebec) o Petition govt agency o Crown grants letters patent o Not based on K, so no capacity limit 3. Articles of Incorp o Filing articles & granting certificates o Contain constitution, purpose, bylaws controlling daily activities o Govt body has no discretion to refuse request

Termination of Corporation Dissolution o Voluntary by directors o Involuntary by creditor Failure to file annual report Selling shares Selling assets Shh can object to termination and take legal action to stop it

Incorporation creates distinct legal entity separate from the people who make it up (SLE Separate Legal Entity) o Isolates shh from business activity o Limits liability of shh & directors o Provides flexibility for investors to buy/sell shares o Courts can lift corporate veil if managers committing crimes/avoiding regulations Incorporations given capacity of a natural person o Power to contract may be limited in some situations depending on legislation All activities carried out by agents EEs may be able to bind corp Agents (Directors/managers) have fiduciary duty to corp o Must exercise care, diligence and skills of a reasonably prudent person o Act in best interest of corporation o Be loyal o Avoid conflict o Act in good faith (disclosure) Negligent Directors? o Failing to meet standard of care o Duty of care owed to stakeholders (incl. Shh) BUT fiduciary duty owed only to corp Failure of Fiduciary duty? o Stealing $$ for personal advantages, competing, conflict of interest (promote competitor)

Lifting corporate veil o o To determine if officers are exceeding their rights and determining if personal responsibility exists Personal liability of directors may be found if breach of Duty of care Fiduciary duty Statutory duty (wages, taxes, environment) Sell shares for less than fair value Create and sell knowingly dangerous products Use insider knowledge and give to friends Refuse to call annual shh meeting Fail to pay corp. taxes to government Officers and Senior Executives Responsible for daily management Fiduciary duty Duty of care and competence Statutorily imposed duties similar to directors Allows shh + others to sue and recover damages

o Shareholders

Different classes of shares effects rights of shh

o o o

Rights come from Statutes/laws, corporations act (BC/Federal) Preferred shares: shh gets preference when dividends declared, but no vote Dividends not paid, preferred shares become voting shares Shh votes on election of director Shh can propose resolution Restriction on transfer/sale of shares where company closely held

Shareholders (share is interest in corp. but not ownership) o Few obligations unless considered insider (if have many shares) o Rights and remedies (outlined in corporate and securities law) Access to records and financial reports Receive notice of annual general meetings Right to vote on major changes First offer of new shares Derivative (representative) action List of share transactions and shh list Minutes of shh meetings Audited statements No right to actual financial records or directors meeting minutes (because then cannot be kept from competitors from getting it) Shh can sue corp when o Shares diluted Shh have right not to have shares diluted w/o opportunity to buy shares o No dividend o Sell off company o Takeovers o New management o Majority shh takes advantage of minority Oppression (action can be taken against unfair prejudice) Shh can get compensation, restraining order, dissolution or liquidation of corp Shh Rights o Can dissent (protest) (minority shh, buyback) o Cannot force dividends o No right to profit or absolute return