Sole Proprietorship
Registration
Agency
Actual Authority
Express Actual Authority:
Implied Actual Authority:
Ostensible Authority
Breach of Warranty Authority
Duties of the Agent to the Principal
Fiduciary Duties
Duties of the Principal to the Agent
Events of Termination
Ratification
Undisclosed Principal
Partnership
General Partnership P/P
Formation of a Partnership:
Name/Registration and Liability:
Default Contract
Ending a Partnership
Partnership is not a separate legal entity
Fiduciary Duties of Partners
Liability of Partnerships to Third Parties
Limited Partnership LP/P
Limited Liability Partnership LLP
Corporation: General
Reasons to Incorporate (Or Not To)
Closely Held Corporation
Constitutional Jurisdiction
Scope of Provincial Power
Scope of Federal Power
Overlapping Provincial and Federal Jurisdiction
Extra-Provincial Incorporation
Choosing Jurisdiction of Incorporation
The Incorporation Process
Federal
Provincial
Post Incorporation Process – Getting Up and Running
Subsidiaries and Affiliates
Corporate Status
The Corporate Veil
Lifting the Corporate Veil
Requirement to Display the Corporate Name
Reincorporation/Continuance
Pre-Incorporation Contracts
Summary of the Common Law:
Statutory Modification:
Ultra Vires Acts of Certain Corporations
Shares and Shareholders
Preferred Shares:
Access to Information about Shares
Issuing and Paying for Shares:
Share Rights and Restrictions:
Dividends
Repurchase and Redemption
Dissolution Rights on Liquidation or Winding Up:
Corporate Governance: Directors and Officers
Appointment and Removal of Directors
Who can be Elected Director:
Who can be Appointed Officer:
Term of office:
Vacancies:
Meetings of Directors
Quorum
Notice
Validity of Acts:
Resolution in Lieu of Meeting:
Dissent:
Power of Directors
Common Law on Delegation
Operation of the Boards of Public Corporations
Duties of Directors and Officers
Fiduciary Duty
Transacting With the Corporation
Taking Corporate Opportunities/Competition
Widening the Scope of Fiduciary Duties
Duty of Care
Defenses to Breaches of Duty
Oppression Remedy
Shareholder Ratification
Other CBCA Duties of Directors
Joint and Several Liability for things that will make a corporation insolvent
Joint and Several Liability for Wages
Obligations Under Other Legislation
Tort Liability of Directors and Officers
Indemnification and Insurance
Corporate Governance:
Shareholders
General Powers
No unusual management power:
Access to Corporate Information:
Resolutions:
Election and Removal of Directors:
Amendment of By-Laws:
Review of Financial Statements:
Appoint an Auditor
Shareholder Meetings
When
Where:
Quorum:
Right to vote:
Voting:
Resolution in lieu:
Requisition of meeting by SH:
Court may: order meeting, review election of directors
Shareholder Control of Fundamental Changes
Amendment of the Articles of Incorporation
Export or Continuation of CBCA corporation
Extraordinary Sale, Lease, Exchange of substantially all corporate assets
Voluntary Liquidation and Dissolution
Shareholder Proposals
Proposal Procedure:
Proxy Solicitation and Proxy Circulars
Proxy:
Management Circulars
Vote Pooling Agreements
Unanimous Shareholder Agreements
Sole Proprietorship
An unincorporated business “owned” by a single individual who is the sole person responsible for success, failure, liabilities, and assets.
Characteristics:
-Sole owner with decision-making power – no one else has ownership interest in the business
-“Personal Liability” Individual and sole proprietorship are one person legally for all purposes
- Assets and income
- Liabilities and debt
- Vicariously liable for employees torts
-Creditors Creditors are personal creditors, and the debt is personal
-Employees Sole Proprietorship may have employees, even several levels of complex management structure, but the employees are not owners of the business
Advantages:
-Small local enterprises with no need to acquire capital, can avoid corporate reporting and tax requirements
-Since there is no separation of the business and personal assets, the proprietor can deduct both the business’ and his personal losses
Disadvantages:
-difficult to grow, diff to raise capital (banks like to deal w/corps that are separate bus entities)
Restrictions:
-Lenders will often put restrictions on the operation of sole proprietorships arises from situations where the sole proprietor does not have significant personal funds (judgment proof) and could be tempted to use the lenders funds to make a risky business move.
Registration
Purpose of Registration
-(1) Identify the SP for Credit Checks
-(2) Identify the SP for the purpose of starting an action
-(3) Avoid the deception of a name indicating plural persons
-(4) Avoid “Passing Off” – SP passing off a claim to another SP/company with the same business name
Remember, a Sole Proprietorship begins when the individual begins operating a business, NOT when he registers a business name
Partnership Act Part 4:
88(1) / Business Name Registration:- A Sole Proprietorship may operate under a business name, but is required to register that name (within 3 months) if:
- the SP is in the business of trading, manufacturing, or mining
- the SP is not a partnership
- the business name is not the name of the SP, or implies a plurality of persons
*register is used to find out who is the entity behind the name
89 / Names Already Registered:
-(1) SP cannot register or use a name that:
- has already been registered, or
- that is so close that it may be confused
- the corporation submits in writing
- the business name was used by the applicant before the company incorporated
90 / Registrar must keep two indices
-enables you to search under either firm or personal name
(2) Firm index
-styles of registered firms
(4) Individual index
-names of members of each firm
90.3 / Anyone can search the register
-(a) search name
-(b) inspect records
-(c) obtain copies
90.4 / (1) It is an offence to file a misleading statement w/registrar that is:
(a)false or misleading statement that relates to material fact, or
(b)omits any material fact that makes the statement false or misleading
90.5 / Person who commits offence under 90.4 is liable to a fine, if an individual of not more that $2000, and if a non-person, not more than $5000
BC Rules of Court: (govern actions in the BCSC)
Rule 7: deals w/how to sue a partnership
7(10): a person carrying on a business under a name or style other than their own name can be sued in that name (can be sued under trade name whether or not it is registered)
Agency
Fridman, The Law of Agency “the relationship that exists between two persons when one, call 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.”
The principal “clothes” an agent with authority to affect the principal’s legal relationships
Characteristics:
-(1) Legally Recognized
-(2) Consensual
-(3) May be a contractual relationship
-(4) Fiduciary Duties
-(5) Principal or Agent may terminate the relationship at will
Actual Authority
Express Actual Authority:
Authority that is actually stated, orally or in writing, between the principal and agent
-Actual authority includes authority that can be inferred from the wording or context of an agreement between principal and agent
Implied Actual Authority:
Authority that is associated with the relationship. It goes with the commercial context and circumstances.
The authority is not spelled out, but is understood with reference to the usual or customary authority of the agent:
-(1) Usual Authority determined by looking at what THAT AGENT has been allowed to do in the past
- Must look to what this principal has allowed this agent to do
- if the agent has done certain things in the past that are outside the express authority of the agent but the principal has allowed the agent to do those things, then the agent may be said to have usual authority to those things Freeman & Lockyer v. Buckhurst Park Properties
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-(2) Customary Authority determined by looking at the kind of authority AGENTS OF THAT TYPE normally have.
- An express grant of authority that is inconsistent with some aspect of the customary authority of agents of that type \ would override the customary authority
- The usual authority of a certain agent would also overrule customary authority
Freeman & Lockyer v. Buckhurst Park Properties
Example of both usual and customary implied actual authority
Architects thought they were retained by Buckhurst, were not paid, the man they worked with, Mr. Kapur (agent), had never been formally made managing director of Buckhurst – however, Buckhurst had allowed Kapur to act as their managing director.
Held:
-Kapur had implied actual authority, and Buckhurst was liable
-Kapur was acting with the customary authority of a managing director, and the usual authority of what he had done in the past with this particular company
Ostensible Authority
“Agency by Estoppel” can arise in the absence of express or implied actual authority; it protects the reliance of innocent third parties
Where a principal has made representations that a party has authority to act as an agent, intending for the third party to act on that representation, they will be barred by equity from refusing to honour that contract Freeman & Lockyer
Elements:
-(1) Alleged principal must have made a representation OR permitted a representation that the alleged agent had the authority to act on their behalf
-(2) The third party reasonablyrelieson the representation to his or her detriment
Lloyd v. Grace Smith
lawyer leaves conveyancing clerk in charge, clerk defrauds widow of her property, clerk had been working for lawyer for many years as a conveyancing agent
Held:
-Firm was liable, clerk has ostensible authority
- (a) Clerk was permitted to act as with authority; “clothed with authority” by the law firm
- (b) and the widow’s reliance was reasonable
Freeman & Lockyer v. Buckhurst Park Properties
Foundational Case on Ostensible Authority
Architects thought they were retained by Buckhurst, were not paid, the man they worked with, Mr. Kapur (agent), had never been formally made managing director of Buckhurst – however, Buckhurst had allowed Kapur to act as their managing director.
Held:
-Buckhurst was liable, Kapur operated with ostensible authority, and Buckhurst was barred from refusing to honour the contract
-Kapur was acting with the customary authority of a managing director, and his usual authority with this particular company – Thus; the principal had permitted a representation to be made that Kapur was their agent, and Freeman’s reliance was reasonable
Policy Rationales:
-(a) Protection of 3rd party reliance
-(b) Least Cost Avoidance
- Alleged principal can check the agent’s trustworthiness, monitor the agent’s behavior, and dismiss an agent that acts beyond his authority at a much lower cost than the third party
Breach of Warranty Authority
Where third party fails in action against the principle (in contract) they may attempt action against the agent (in tort)
This is an action by the third party against an agent in tort; where the agent warranted but did not have actual or ostensible authority
Elements:
-(1) The Agent represented that she/he had authority
-(2) The Representation was False
-(3) The third party acted to her/his detriment
Damages: Expectation (put the third party in the position they would have been in had the warranty been true)
Duties of the Agent to the Principal
Based on the fiduciary relationship between principal and agent, they can be varied by express agreement
To Perform Agency Obligations
-Or, when the object of the agency relationship cannot be completed, the agent must do his/her best
-Agent will not be liable when the obligation placed on them is illegal
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To Perform with Reasonable Care
-Standard is the skill and diligence an agent in his or her position would normally possess and exercise
NOT to exceed the scope of authority
Fiduciary Duties
(1)Duty of Loyalty
- Duty to act in the best interests of the principal
- Dutynot to put oneself in a position where one’s personal interests conflict with the principal’s interest
- Normal Remedy: transaction is void and the agent is required to account for any profits made
(2)Duty not to Delegate
- Normally: no delegation (agent is assumed to be trusted representative designated by the principal)
- In some situations: circumstances or express authorization make delegation allowable
- (e.g.: Captain that has been made an agent to trade goods at port has circumstantial authority to delegate some tasks to people who speak the language and understand the local market)
(3)Duty to Keep Proper Accounts
- If an agent does not keep proper accounts, the court will take a view of the amount of the profit to the agent or loss to the principal that is most favourable to the principal (Evidentiary Presumption)
- If an agent has multiple principles, he/she must keep separate accounts for each of the principles
(4)Duty not to take Secret Profits
- Thompson v. Meade: Agent should not take secret profit (breach of FD); stockbroker asked to sell stock for 10, sold for 12, kept the 2
- Remedy: equitable remedy of accounting for profits (person in breach has to account for any gain)
Duties of the Principal to the Agent
(1)Requirement to Pay Remuneration
- normally requires express agreement, since agency relationships can be gratuitous
- In situations where there is no express agreement BUT circumstances are such that the agent would not reasonably have been acting gratuitously – courts may award merit on a quantum merit basis
(2)Requirement to Pay the Agent’s Expenses and Indemnify the Agent Against Losses
- Agent must be acting within the scope of their actual authority
- Expenses must be necessary and reasonable for carrying out the agency
- Losses must not be the fault of negligence of the agent
- Agent may not receive reimbursement for expenses incurred that are illegal
Events of Termination
(1)By Act of the Parties
- Agency Relationships are Unilaterally Terminable On Notice – no requirement for reasonable notice period (as in employment)
- When the task that the agent was set to is complete, the powers of the agent is complete
(2)By Operation of Law
- When either party becomes bankrupt
- Death or Incapacity (i.e. insanity) by either party
- Where the whole purpose of the relationship is presumed to have been frustrated
Ratification
Where the agent acted beyond his/her authority, the principle can nonetheless ratify the interaction
Conditions for ratifying a contract:
(1)The Agent purported to act on behalf of another person who seeks to ratify
(2)The person who seeks to ratify was in existence and was ascertainable at the time the other person purported to act as agent, and at the time of ratification
(3)The 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
Ratification can be:
(1)Express
(2)By Conduct
- By beginning to fulfill a contract
(3)By Acquiescence
- By failing to reject the transaction within a reasonable time of learning that the purported agent entered into it
- Ratification must be based on a knowledge of all the facts
Consequences of Ratification:
(i)The ratification relates back to the time of the offer and acceptance between the agent and the third party
(ii)The principal can sue the third party and can be sued by the third party
(iii)The agent is no longer liable for a breach of warranty of authority
(iv)The agent is no longer liable to the principal for exceeding her or his authority
(v)The 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 contract
Policy Reasons for Allowing Ratification:
-Allow for transactional flexibility – both principal and agent want the deal
-Certainty – once there has been an act of ratification, the principal must be legally bound
-Prevention of unjust enrichment – not allowing principal that has ratified to back out of a deal
Undisclosed Principal
Agents that act for principals (potentially several principals) and have their own premises (distributor for many manufacturers) may contract with the third party and not disclose that they are acting for a principal
(a)Generally, an undisclosed principle can, by disclosing their interest, enforce a contract with a third party
- the principal may disclose to the third party that they are the principal, and in doing so take ownership of the contract
(b)Undisclosed principal CANNOT enforce a contract if:
- The third party was under the distinct impression and had the intention that the Agent personally comply
- and/or that the third party can demonstrate that they would never have contracted with the principal.
Said v. Butt
Undisclosed principal could not enforce a contract, because the third party successfully showed that they never would have contracted with the principal
S had friend (Agent) buy a ticket to a theatre which he had maligned, denied entry on night of performance, theatre was successful in barring him because they reasonably expected the Agent to be performing the contract
Partnership
General Partnership P/P
There is no formality to a general partnership relationship Two or more persons carrying on business in common with a view of profit are partners
Characteristics:
-Partners share rights and liabilities equally
-Partners act as agents for each other
- One partner can affect the legal relationships of all partners with third parties
- All partners owe fiduciary duties to each other
-Partnerships are not treated as separate legal entities for Tax purposes
Formation of a Partnership:
-There is no formal process for the creation of a general partnership (except registration), partnerships can be created without the express intention of the parties(Backman v. Canada)
Partnership Act s. 2 Partnership is a Relation which subsists between personscarrying on businessin common with a view of profit