corporations (chapter 7)

business

any activity that seeks to provide goods and services while operating at a profit; transactional relationship

business structure

form of carrying on business that dictates key aspects of the business' creation and organization

sole proprietorship

business owned and operated by one person

- no legal separation between owner and business

- typically small businesses w/ few or no employees + single location

unlimited liability (sole proprietorship)

the owner is personally and fully responsible for all losses and debts of the business

- no separation between personal + business assets

partnership

'accidental business structure' that exists when two ppl:

- pool their CAPITAL for a common purpose

- share in the PROFIT or LOSS of the business

- make decisions + MANAGE the business tgt

- exercise authority to BIND the partnership to third-party contracts

- share the LIABILITIES related to the business

general partnership

two or more individuals run an incorporated business

- not an independent legal entity

- individual partners have joint & several liability

joint liability

shared equally or as set out in the partnership agreement

several liability

plaintiff can sue/collect from one or some partners if the others are unable to pay

- chosen partner may sue the others to pay their share

limited partnership (LPs)

at least one general partner + one or more limited partners

- "flow through"; used w/ businesses who have big losses before growing assets (e.g., car dealerships)

general partner

personally liable for debts and obligations

- signs everything; can get sued and lose everything

- suffers joint & several liability

limited partner

owner who invests money but does not have management responsibility or liability for losses beyond their investment + share of profits

- formed when registered under Partnership Act in BC

limited liability partnerships (LLPs)

general partners with joint & several liability

- one is responsible for general debts and obligations + those that arise from their own/any person under their supervision's negligent acts or omissions

partnership agreement

sets out how partnership will operate and how it will end

- covers financial, compensation, business, and management matters

corporation/company

distinct legal entity that has almost all the rights and obligations of an individual

- responsible for own debts/obligations

- protects against personal liability

- can remain intact even if assets/shares are sold

incorporator

individual who files the required documentation to cause corporation to exist

- not legally liable for debts and obligations

director

responsible for major decisions regarding affairs of the corporation (e.g., officer oversight)

officer

responsible for day-to-day operation under the supervision of directors

shareholder

owns an interest in the corporation's assets + may have a voice in how it operates

(right to dividends & right to vote)

- can sue when shareholder rights are not protected

steps to create a corporation

1. draft articles of incorporation

2. select corporate name

3. pay fee and register articles of incorporation + name w/ government office

(NUANS search not required in BC)

unanimous shareholders' agreement

an agreement among all shareholders that restricts the powers of the directors

- allows private corporation the flexibility that a partnership offers + benefits of incorporation

when does a corporation end?

through its liquidation or winding up (dissolved), which is generally governed by the same statute that created it

common shares

most basic form of ownership

- right to vote and dividends, if declared

preferred shares

- usually no voting rights

- right to receive dividends or assets before owners of common shares

derivative or representative action

committee of shareholders asks court to appoint them to run a legal action when directors/officers fail to protect the corporation

what can judges make directors personally liable for?

- dividends when a corporation is insolvent (unable to pay debts)

- some taxes & deductions

- environmental damages

- crimes

due diligence

defence that claims a person did everything reasonable to prevent an offence from occurring

fiduciary duty

enhanced duty of care that flows from a relationship of trust

- act honestly + in good faith

- share relevant info w/ corporation

- avoid conflicts of interest (giving up potential business opportunities)

public corporations

shares are held by the public through trading on a stock exchange

- subject to greater degree of government regulation

advantage of public corporations

ability to raise capital by selling shares to the public

disadvantages of public corporations

loss of control + compliance obligations

co-operatives

organizations owned and operated by their members

- bonuses instead of dividends

characteristics of agent-principal relationship

- agent has authority to represent and bind principal to contract w/ a third party

- agent has duty to represent the principal fairly and act in their best interests

- any third party w/ whom the agent deals with must rely on agent's apparent authority + hold principal legally responsible for their dealings

joint venture

temporary partnership created to complete one or more projects

- not incorporated

franchise

right to operate a business using the name, products, business methods, and advertising of another business

licenses

contract that confers rights from one party to another in accordance w/ its terms (permission to do smt)

- usually limited in scope