Business Associations Final Outline – O’Brien

Asif Abdulla – 2011 Fall

Table of Contents

SOLE PROPRIETORSHIP

Partnership Act:

Section 88 – Trading under firm name implying plurality of partners

Section 89 – Names similar to corporation

Section 90 – Indices

Section 90.3 – Search of the Registrar

Section 90.4 – Misleading Statements an Offence

Section 90.5 – Penalty

AGENCY

Definition:

Relationship Between Principal and Agent:

Actual Authority, Implied Authority, Usual Authority

Duties of the Agent to the Principal

Duties of the Principal to the Agent

Termination of the Agency Relationship

Relationship Between Principal and 3P, and Agent and 3P:

Ostensible Authority; Agency by Estoppel

Ratification

Undisclosed Principal

Liability of Principal for Agent’s Torts

PARTNERSHIP

Formation of Partnership

Four Elements of Section 2:

Partnership Act

Section 1 - Definitions

Section 2 – Definition of Partnership

Section 3 – Exclusion of Corporations

Indicia of Partnership

Section 4 – Rules for Determining Partnership

Relationship Among the Partners

Partnership Act Default Rules

Liability of Partners to 3Ps

Partnership Act Liability to 3Ps

Dissolution of Partnerships

Partnership Act Dissolution:

Retirement of Partners

Registration of Partnerships

Partnership Act – Registration Requirements

Joint Ventures

Advantages of General Partnerships

Limited Partnerships – Part 3

Essentials:

Partnership Act – Limited Partnerships

Significant Aspects of LP Partner Relations

Advantages of a Limited Partnership

Limited Liability Partnerships – Part 6

Partnership Act - LLPs

Partnership Act – Formation of LLPs

Partnership Act – Obligations of LLPs

CORPORATIONS

General Corporate Structure

Constitutional Jurisdiction

Implications of Constitutional Position

BCBCA – Extra Provincial Registration

CBCA Basics

Forms:

CBCA – Directors and Officers

Consequences of Incorporation

Incorporation Process:

Post-Incorporation Steps Under the CBCA

Advantages of Incorporation:

Corporate Personality and the “Corporate Veil”

CBCA Sections – Shareholder Immunity

Piercing the Corporate Veil (Disregarding the Legal Entity)

Requirement to Display Corporate Name

Section 10(5) – Publication of Name

BCBCA Sections – Corporate Naming:

Jurisdiction of Incorporation

CBCA Advantages:

BCBCA Advantages:

Change of Jurisdiction of Incorporation

CBCA Continuance

Pre-Incorporation Contracts

Section 14 – Personal Liability

Ultra Vires Acts of Certain Corporations

Ultra Vires

Constructive Notice and Indoor Management Rule

Shares and Shareholders

The Nature of a Share, and the Share (Securities) Register

Issuing and Paying for Shares

Share Rights and Restrictions

1. Voting Rights

2. Dividend Rights

3. Rights on Liquidation or Winding Up

Redemption and Repurchase of Shares

GOVERNANCE – DIRECTORS AND OFFICERS

Appointment and Powers of Directors and Officers

Appointment, Removal, Meetings of Directors

Powers of Directors

Access to Records of Directors

Duties of Directors and Officers

Fiduciary Duties

Other CBCA Duties of Directors

Obligations Under Other Legislation

Tort Liability of Directors and Officers

Indemnification and Insurance

GOVERNANCE - SHAREHOLDERS

General Powers of Shareholders

No Usual Management Powers

Access to Information About Corp

Resolutions

Election and Removal of Directors

Amendment of By-Laws

Review Financial Statements

Appoint an Auditor

Shareholder Meetings

Fundamental Changes

4 Fundamental Changes

Amendment of Articles

Continue (Export) to Another Jurisdiction

Extraordinary Sale, Lease or Exchange of Assets

Voluntary Liquidation and Dissolution

Shareholder Initiatives

SH Proposals

Proxy Solicitation and Circulars

Access to Other Corp Information

Closely Held Corporation

Vote Pooling Agreements

Unanimous Shareholder Agreements

Requirements for Unanimous SH Agreements:

SHAREHOLDER REMEDIES

Personal Action

Derivative Actions

Oppression Action

Requirements for Oppression:

Compliance and Restraining Orders

Section 247 – Restraining or Compliance Order

Section 248 – Summary Application to Court

Rectification of Corporate Records

Section 243 – Application to Court to Rectify Records

SOLE PROPRIETORSHIP

-No formal legal structure – owned by an individual

-Legal ownership of the business assets is not separate from the sole proprietor’s own assets

-Benefits:

  • Almost no cost to run a business this way
  • Losses are deductable against personal income

-Individual owners make all their own decisions, assets are all owned in the same way that personal assets are owned

  • Growing business would likely convert to corporation after making money

Partnership Act:

Section 88 – Trading under firm name implying plurality of partners

-Where indicating a plurality of partners, there must file with the registrar

Section 89 –Names similar to corporation

-(1) Must not file a business name that

  • (a) Is used by a corporation registered or continued in BC
  • (b) Nearly resembles a name such that it is likely to confuse or mislead, or is a name that the registrar disapproves in its discretion

-(2) Registrar may file the certificate if corp consents in writing or business used the name for registration before the corp first used the name

Section 90 – Indices

-Registrar must keep two indices of the declarations filed under the Act

-Lays out the administrative process for these indices

Section 90.3 – Search of the Registrar

-Any person may

  • (a) conduct search by name of firm or name of partner
  • (b) inspect records and information maintained by the registrar
  • (c) obtain copy of all or any part of a record maintained by registrar
  • (d) require that copy by certified by registrar

Section 90.4 – Misleading Statements an Offence

-(1) Person who makes a statement in registration commits an offence if the statement

  • (a) is false or misleading of any material facts or
  • (b) omits any material fact that makes the statement false or misleading

-(2) directors who knowingly authorize, permit or acquiesced to the commission of the offence are party to the offence and guilty

-(3) Not guilty if that person

  • (a) didn’t know the statement was false or misleading and
  • (b) with the exercise of reasonable diligence, could not have known that the statement was false/misleading

Section 90.5 – Penalty

-Liable fine of not more than $5000 (if person); or fine of not more than $2000 (if individual)

AGENCY

Definition:

-The “agent” is a person who affects the legal relations of another person, called the “principal”

  • Agent can effect the legal relations of the principal in several ways but primarily through entering contracts on behalf of the principal

-“The relationship that exists between two person when one, called the agent, is considered in law to represent the other, called the principal, in such a way as to be able to affect the principal’s legal position in respect of strangers to the relationship by the making of contracts or the disposition of property”

-Businesses require agents to carry out their function

Relationship Between Principal and Agent:

-Agent is considered at law to represent the principal

-Agent may effect the principal’s legal position

-Agency may exist through written agreement, oral agreement, and does not require consideration

-Agent owes fiduciary duty to principal – chosen based on trust

-Differs from Employment relationship

  • Employee does not necessarily have the right to bind the employer

-Differs from Trust relationship

  • Both owe fiduciary duties, but acts of trustee do not bind the settlor or the beneficiary

Actual Authority, Implied Authority, Usual Authority

-Express Actual Authority:

  • Can be written or oral
  • Provides specific authorities and powers
  • Where tasks are required to complete the subject matter expressly authorized, then those tasks are seen as impliedly authorized

-Implied Actual Authority:

  • Constitutes authority in the absence of express actual authority
  • Usual Authority:
  • What this specific agent has been allowed to do in the past
  • Freeman & Lockyer v. Buckhurst Park Properties (Mangal) Ltd (1964, QB) – see below
  • Actual authority implied from the circs – scope of authority would be based on what directors of the board usually had allowed Kapoor to do in the past

-Customary Authority:

  • Look at what agents of that type typically are authorized to do
  • Bank managers, stock brokers, etc
  • Wiltshire v. Sims – below
  • Stockbrokers did not customarily have authority to sell shares on credit – no authority here
  • Differs from usual authority:
  • Usual looks at what THIS principal allowed THIS agent to do the past
  • Customary looks at what agents OF THIS TYPE are NORMALLY ALLOWED do in other similar relationships
Freeman & Lockyer v. Buckhurst Park Prpoerties (Mangal) Ltd (1964 QB)

-P was a firm of architects engaged by Kapoor on behalf of the D

-P was not paid by D for the work they did, so sued D for the fees

-Held:

  • Principal is liable to a 3P who enters into K with principal through an agent who has actual authority to act on behalf of the principal
  • Here, Kapoor was acting as a managing director, but never actually appointed by the board of directors
  • But board was aware that Kapoor was acting in this capacity
  • Actual authority is implied from the circs
  • Scope of authority is based on what directors of the board usually had allowed Kapoor to do in the past
Wiltshire v. Sims (1808)

-While stockbrokers usually have authority to sell shares on behalf of clients, they don’t normally have authority to sell shares on credit

-So in absence of express authority/prohibition, look to customary authority of agents of that particular type

-Held:

  • Stockbrokers do not generally have authority to sell shares on credit – so no authority here

Duties of the Agent to the Principal

-Fiduciary duties are owed to the principal – implied terms of the relationship

-May be varied by express agreement, but not by implication from the circs

-Duty to Perform Agency Obligations:

  • Must perform the assigned tasks according to principal’s instructions
  • Standard – all reasonable and best efforts to perform the duties
  • Must not exceed authority
  • Agent not liable if the act they are authorized to perform is illegal

-Duty to Perform with Reasonable Care

  • Standard of care is the degree of skill and diligence that an agent in his/her position would normally posses
  • Professionals – act within the degree of skill or a reasonably competent professional in their trade

-Fiduciary Duties:

  • Loyalty - Agent must act in the best interests of the principal – must put principal’s interests ahead of agent’s
  • Conflicts of Interest:
  • Not to put himself in position where agent’s interests conflict with the principal’s interests
  • Remedy – transaction is void and agent is required to account to the principal any profits made in the transaction
  • Damages would compensate for any losses caused by the conflict
  • Not to Make Secret Profits:
  • Cannot act as a double-agent
  • No kickbacks or finder’s fees for performing principal’s contracting
  • Remedy – Agent required to account for profits made by agent to the principal

-Duty not to Delegate:

  • Principal-Agent relationship is based on trust – only principal can determine who is an agent
  • Remedy – damages for any loss resulting from delegation – possible injunction from further delegation
  • Delegation may be appropriate where there are extraneous circs – where done in good faith and is necessary to carry out a simple (but important in some cases) task on behalf of the principal

-Keep Proper Records:

  • Keep books/accounts in order – separately from agent’s own accounting
  • Must be able to produce records upon request
  • Remedy – evidentiary presumption against agent – amount of profit to the agent or loss to principal – whichever is most favourable to the principal

Duties of the Principal to the Agent

-To Pay Remuneration

  • Generally requires express agreement – commissions only where agent is successful
  • Where it is clear that agent would not have been inclined to act gratuitously
  • Quantum Meruit – compensation for what work was actually done

-To Pay Agent’s Expenses and Indemnify Against Losses

  • Agent must be acting within scope of actual authority – not expenses through the fault of agent
  • Must be reasonable and necessary expenses
  • Negligence of agent that results in additional costs does not require repayment
  • Cannot have reimbursement for illegal expenses

Termination of the Agency Relationship

-By Act of the Parties:

  • Where agency agreement provides for termination
  • Unilaterally terminable on notice

-By Operation of Law:

  • Principal or Agent becomes bankrupt
  • Frustration
  • Where purpose of the agency relationship no longer exists
  • Death/Incapacity of Principal or Agent

Relationship Between Principal and 3P, and Agent and 3P:

-Agent cannot enforce contract and is not party to the contract – contract exists between principal and 3P

-Recall Actual Authority

  • Where actual authority exists and it is clear agent was acting for principal in dealings with 3P, then the K, if otherwise valid, will be a binding K between the principal and the 3P

Ostensible Authority; Agency by Estoppel

-Principal has never in fact authorized agent’s actins, but by representations or actions, is estopped from denying the agent’s actions

-Occurs where 3P and Principal are at disagreement as to whether the agent had authority to bind principal

  • Protects the reliance interests of 3P who are led to reasonably believe the person is acting as agent

-To the public it appears as if the agent had the authority

  • Either principal represented or permitted the agent to represent self that he had actual authority

Essential Elements:

-Representation or permitting of representation that the agent had authority

  • Rep can be express, implied or circumstantial

-Reasonable reliance on the representation to the 3P’s detriment

Freeman & Lockyer – above – Kapoor – not actually a director – implied/customary actual authority

-Also ostensible authority – reasonably relied upon that Kapoor had the usual authority

Lloyd v. Grace, Smith & Co – more below

-Client wants help from lawyer – lawyer left conveyancing clerk in charge of the office

-Clerk committed fraud – client sued law firm saying they were liable for agent’s action

-Held:

  • Firm didn’t authorize clerk, but they did hold out the clerk as someone who is authorized by the office to do things that clerks do
  • Fact that clerk did something illegal doesn’t change the fact that the rep of trust and authority was made by the firm
  • Client reasonably believed the clerk was agent of the firm – lawfirm was the principle
  • Therefore, firm was liable for the actions of the agent

Reasons for Ostensible Authority:

-Protection of reliance by 3P

  • Competing interest is unfair surprise – principal will be surprised at being bound to a K
  • But principal could have taken steps to avoid the potential reliance interest

-Least Cost Avoidance

  • Obligation is on the person who can avoid risk at least cost
  • Principal can check agent’s trustworthiness, monitor agent, dismiss agents

Breach of Warranty of Authority (Tort)

-Claim by 3P against an agent, where agent warranted that he/she had authority but in fact did not have actual or ostensible authority

-Developed before negligent misrepresentation

-Elements:

  • 1. The agent represents that he/she has authority
  • 2. Representation is false and
  • 3. The 3P acts on the representation to his/her detriment

-Claims:

  • 1. Against the alleged principal on the basis that the agent had authority (actual/ostensible)
  • 2. Against the alleged agent on the basis of breach of warranty of authority

-Damages:

  • Negligent misrepresentation – reliance damages
  • Breach of warranty of authority – expectation measure of damages
  • Includes lost expected profits from the transaction
  • Put the 3P in the position he/she would have been had the ‘agent’s’ promise been true

Ratification

-Where agent acts beyond authority, but principal chooses to accept what the agent has done

-Generally occurs in instances of usual authority

-Circumstances:

  • 1. Person purported to act on behalf of another person who seeks to ratify
  • 2. Person who seeks to ratify was in existence and was ascertainable at the time the other person purported to act as agent; and
  • 3. Person who seeks to ratify must have had the legal capacity to do the act both at the time the other person acted and at the time of the ratification
  • Commonly related to corporations that come into existence after Ks are in place

-Requirements:

  • 1. Ratification can be express, by conduct or by acquiescence
  • Generally, performance of the K is sufficient
  • Also, simply waiting and seeing what the outcome of the K will be, is sufficient
  • 2. Ratification must be based on a knowledge of all the relevant facts
  • Principal must be aware of the nature of the deal
  • Minor aspects may not allow the principal to escape duties under the K

-Consequences:

  • Creates an enforceable contract between 3P and Principal – they can sue each other
  • 1. Relates back to the time of the offer and acceptance between the agent and 3P (formation time)
  • 2. Principal can sue 3P and vice versa
  • 3. Agent is no longer liable for breach of warranty of authority
  • 4. Agent is no longer liable to the principal for exceeding his/her authority
  • 5. Principal will be liable to the agent for reasonable remuneration and to indemnify the agent for expenses reasonably incurred by the agent in effecting the K

-Policy Reasons:

  • Mutual benefit
  • K is determined to be good for everyone
  • Promotes certainty
  • Unjust Enrichment of the Principal at the Expense of the Agent
  • w/out ratification, principal would have no down-side risk – if deal went through, they win if it goes south, then sue the ‘agent’
  • Also, principal would be able to go through with K and not indemnify/pay agent
  • Unjust Enrichment of the Principal at the Expense of the 3P (principal’s speculation)
  • Rat by acquiescence
  • avoids potential upside gain for the principal
  • Rat by conduct
  • Ensures principal cannot just perform K until it’s not beneficial anymore
  • Principal in existence
  • Ensures that persons cannot wait to see if the deal is good before creating the principal – no ratification unless principal was in existence at formation
  • Principle Ascertainable
  • Same argument
  • Unjust Enrichment of the 3P at Expense of Principal (3P’s speculation)
  • Protects principal from 3P reneging on deal to get a better deal in rising market
  • Cures Minor Defects in the Grant of Authority
  • Reduces legislation in actual/ostensible authority

Undisclosed Principal

-Where Agents act on behalf of principals without disclosing the relationship to the 3P

-Contract is believed to be between 3P and Agent

  • Principal can still sue the 3P in some circs
  • Once principal discloses they are the principal, they effectively take over the K

-Where Principal can Sue 3P