Week 6 - Business Entities and Alternative Methods of Carrying on Business in Canada

What are the main forms of business entities in Canada?

Sole proprietorship, partnership, joint venture, corporation, branch operation, income trust, franchising, licensing, independent agent, distributor.

What factors determine the appropriate business structure?

Nature of business, liability, financing needs, tax considerations, stakeholder goals, and business plan.

What is a sole proprietorship?

An unincorporated business owned by one individual; simple to form, owner has full control and unlimited liability.

What are key traits of a sole proprietorship?

No formal registration (unless using a trade name), subject to general business regulations, best for small enterprises.

Define a partnership.

A relationship between two or more persons carrying on business in common with a view to profit.

Who regulates partnerships in Canada?

Provinces – each has its own Partnership Act.

What are the elements of a partnership?

Relationship between persons, carrying on business in common, with a view to profit.

How is a partnership created?

Usually by written agreement, but can also arise by conduct if the relationship meets the legal definition.

What activities don’t necessarily form a partnership?

Owning property together or collecting rent without ongoing business activity.

What indicates a “profit motive” in partnerships?

Sharing profits – though not conclusive, it is strong evidence of partnership.

Who owns partnership property?

The partnership itself; partners only own an interest in that property.

What is the liability of partners in a general partnership?

Each partner has unlimited personal liability for debts, contracts, and torts within the scope of the business.

Are partners liable for acts before or after they joined?

Only for obligations incurred while they were members; not for debts before joining.

What fiduciary duties do partners owe each other?

Full disclosure, accounting for secret profits, and no competition without consent.

What is a limited partnership?

A statutory form with at least one general partner (unlimited liability) and limited partners (liability limited to investment).

What happens if a limited partner manages the business?

They risk losing limited liability.

What is a Limited Liability Partnership (LLP)?

Used mainly by professional firms; partners are only liable for their own negligence and those they supervise.

What is a joint venture?

A collaboration between two or more parties for a specific project, combining resources for mutual profit.

How is a joint venture typically structured?

By contract, or through a partnership or separate corporation.

Define a corporation.

A separate legal entity created under federal or provincial law, distinct from its shareholders and officers.

What are the key characteristics of corporations?

Limited liability, separate ownership and management, perpetual existence, taxable entity.

What case recognized separate corporate personality?

Salomon v. Salomon & Co. Ltd. (1897).

What are associated corporations?

Companies related vertically (parent–subsidiary) or horizontally (controlled by same person).

Can creditors of one subsidiary claim against another?

Generally no, due to separate corporate personality.

When can limited liability be overridden?

Fraud, improper dividend payments, torts by directors, or statutory liability (e.g., unpaid wages).

How is a corporation incorporated in Ontario?

File articles of incorporation and pay a fee; can later be amended by a 2/3 shareholder vote.

What are types of corporations?

Private (non-offering), public, not-for-profit, cooperatives, professional corporations.

What is a professional corporation?

Formed by members of a licensed profession for tax and liability benefits; each remains liable for personal negligence.

Who manages a corporation?

Board of directors elected by shareholders; officers manage daily operations.

What are two main ways corporations raise capital?

Issuing shares (equity) and borrowing funds (debt).

What are common vs preferred shares?

Common: full risk and reward. Preferred: fixed dividends and priority on dissolution, sometimes no voting rights.

How does debt differ from shares?

Debt is repayable with fixed interest and priority in liquidation; shareholders get residual dividends and ownership rights.

What is a branch operation?

A foreign company operating in Canada without forming a separate legal entity; parent company remains liable.

What is franchising?

A business model where a franchisor licenses its brand and systems to a franchisee for fees.

What duties exist in franchise relationships?

Duty of good faith, disclosure requirements, and right to associate (under provincial laws).

What is licensing?

A contractual right to use intellectual property (trademarks, patents) with agreed-upon standards.

What is an independent agent?

An agent with limited authority to solicit orders but not take title to goods.

What is a distributor?

A party who purchases goods for resale, usually owning title; relationship set by contract.