Business Law - Midterm

Covers Lectures 1-4

3 basic elements of a properly functioning legal system

the law

law-making structure

administration and enforcement

Law making structure of Canada

Head of state: King - represented by the governor general

Head of government: Prime Minister

2 chambers of parliament: Senate, House of Commons

Senate

Appointed by the governor general on advice of the prime minister but those appointed do not need to follow the PM’s wishes. Senators serve their roles until the age of 75 or death (i.e. appointed for life).

House of commons

elected officials by the people of canada. Members are referred to as the members of parliament. Members serve limited terms (5 years)

Who can introduce a bill

Any member of parliament - the people can also propose bills by creating them but they must get a member of parliament to present it to parliament. Usually, the minister of the department most linked to the bill would introduce it but this is not a requirement.

Process of introducing a bill

Bill is proposed —> 1st reading —> 2nd reading —>committe —>

3rd reading —> senate —> governor general —> bill becomes law in one of 3 ways

1st reading

bill is presented by an MP and the bill is read. No debate or vote occurs.

2nd reading + committee

Bill is read once more and debated. A vote occurs. If the bill fails it goes no further. If it passes, it goes on to committee. In committee, further research will be done on the bill and they will perform surveys and such to see the effects of this bill. if needed, they would make any necessary ammendments to the bill

3rd reading

The bill is read once more with the amendments. It is once again debated and additional amendments may be proposed. Then, it is voted on again and if it passes it goes on to the senate.

senate stage of a bill

Bill will be passed on to the senate (who rarely reject bills) but they will analyze and approve the bill. It will then go to the governor general for final approval

governor general

representative to the King (or Queen) of England in Canada. Appointed by the monarch on advice of the prime minister. Current gov. gen. is Mary Simon

three ways for a bill to become law once it passes the governor general’s approval

1) through royal assent - act is brought into law and effect immediately

2) at particular date - act is brought into law and effect on a specified date in the future

3) through proclamation - act is brought in law and will take effect at some point in the future that has yet to be determined.

how can laws be changed - the reasons

public pressure can lead to change, judicial decisions can set precendence that elaborates laws, and amendments can be made to clarify laws.

how laws can be changed - the process

(other than through a judge setting a new precendence) the amendment will go through the same process as the original creation of the law. Typically the governor that proposed the law is the one to change it.

private law

laws that regulate the relationship between individuals (ex. family law, contract law)

public law

laws that regulate the relationship between individuals and the state (ex. criminal law, tax law etc.)

common law

judges are bound by previous judicial decisions called precedence or stare decisis

inherited from england

approach used for private law in all provinces (except Quebec)

approach used for public law in all provinces (except Quebec)

civil law

only used in Quebec for private law because inherited from France

Judges are not bound by judicial decisions and the law is much more specific

in practice, many judges still use precedence to help form their decisions

CCQ

Stands for the civil code of Quebec and is the legal foundation for private law in Québec.

It contains some information about corporations such as the various rules that corporations, partnerships, and shareholders must follow.

That said, it mainly contains information about private law subjects such as family law, succession law, property law etc.

most of contract law in quebec is under this

ALPE

Act respecting legal publicity of enterprises

This act establishes the enterprise registrar (and its responsibilities) which established who must register and set rules relating to the information that is required to be registered. It also establishes rules for naming a business.

Quebec legislation

i.e. anything concerning registering you business is in here

Who must register in the enterprise registrar?

According to ALPE, it is mandatory to register for all business if using a business name (and is optional if operating under first and last name). It is also optional if using pseudonyms in pursuit of artistic, literary, or cultural activity. It is mandatory for any tobacco retail or tanning salon, regardless of the name.

What is the purpose of the enterprise registrar?

(1) keeping and preserving the register and recieiving the documents to be deposited within it and keeping the register accessible to the public

(2) registering natural persons and trusts who operate enterprises, partnerships and legal persons

(3) conferring legal existence on a legal person and recording this existence and drawing up any certificates that recognize changes to their constituting instruments

(4) taking reasonable measures to ensure that the register remains reliable

When must a declaration be submitted to the registrar?

the general rule is within 60 days of starting but for tanning salons or tobacco retail it is a maximum of 30 days after starting

3 main sources of law

1) The Canadian Constitution (1867) and The Constitution Act (1982)

2) previous judicial decisions (precendence → stare decisis)

3) Federal and provincial legislation

The Canadian Constitution

from 1867

Talks about the Division of Powers which delegates the different responsibilities (called Heads of Power) to the Provincial vs. Federal government

Constitution Act

(1982)

Charter of rights and freedom: freedom of speech, freedom of thought, freedom of religion, etc.

These rights are not absolute and are only guaranteed within reasonable limits as can be demonstrably justifiable in a free and democratic society

Two ways to violate the charter of rights and freedom

Oakes Test and Notwithstanding Clause (clause 33)

Oakes Test

The law passed that violates the charter of rights must have:

• a clear objective that it is clearly working towards

• infringe on rights as little as possible

• the benefits of the law must outweigh the rights it is violating

If it has all three, it is said to pass the oakes test

Notwithstanding Clause

ss. 33

Provinces may declare that an act will exist “notwithstanding” a provision in the charter. There is a 5 year limit on that after which the notwithstanding clause must be re-evoked or the law is thrown out.

Federal and provincial legislation

includes laws passed by the federal and/or provincial levels of government

Judicial decisions

The decisions are the result of interpretation and application of the law

Through interpretation, judges “create” laws by providing decisions in situations of ambiguity. (if the government is not happy with an interpretation, they are free to pass an amendment to the law that specifies the way they wish it to be applied)

Also referred to as court decisions, case law, or jurisprudence

Court system

Exists to help resolve disputes between parties.

There is a heirarchy of courts working their way up to the supreme court of Canada that is the highest court and comprised of 9 judges (with 3 of these seats reserved for Quebs)

Alternative methods of resolution

arbitration - go to a neutral third party (called the arbitrator) and they will hear out both sides before deciding on the outcome

mediation - go to a neutral third party (called the mediator) and they will hear out both sides and use mediation techniques to help the parties come to a resolution between themselves.

Lawyers

can work in litigation (go to court, settlements, etc.) or transaction (no court, more contracts) practices

Notaries

Civil notaries must also go to law school but focus more on transactional things (wills, marriages, etc.)

Typically cannot represent people but can advise them in areas of law in which they are knowledgeable.

Sole proprietorship

enterprise or business venture operated by one single individual (business is a series of transactions)

sole proprietorship - liability

no distinction in the law between the sole proprietor and their business and thus the sole proprietor has unlimited liability for all debts - if the business goes bankrupt, so does the sole proprietor

sole proprietorship - ownership and management

own 100% of the business and recieve all profits as individual income (and it is taxed as such)

complete managerial control

sole proprietorship - ownership transfer

ownership cannot be transferred but assets can be sold

sole proprietorship - termination

terminates when the owner dies OR the owner stops doing business

in either case, we must file a declaration of cancellation (at no cost). If they died, whoever is in charge of their estate would be responsible for this filing.

Sole proprietorship - Advantages and Disadvantages

Advantages:

• easy set up

• full management control and entitled to all profits

• easy to dissolve

• low start-up costs

Disadvantages:

• Unlimited liability

• lack of continuity

• difficulty financing or gathering goodwill

partnership

enterprise or business venture by two or more individuals

two types of partnerships - general and special:

general - solidary (being as one) and unlimited liability

special - special partner is only liable up to the amount of their contribution but in exchange they are not permitted to take part in management (though they may give an advisory opinion)

partnership - startup

must register under the same rules as a sole proprietorship

registration - 62

priority registration - 93

partnership - liability

no distinction in law between the business and partners - partners have unlimited liability

They are solidarily liable for debts of the business meaning that if one can’t pay, the other must

• partners could come to an agreement amongst themselves that a particular partner is not responsiblefor debts but such an agreement would not be enforceable against creditors

partnership - ownership

division of ownership is determined by partners and does not have to be equal - it is written in the partnership agreement

Unless otherwise specified in this agreement, CCQ assumes equal ownership

partnership - profit

share of profits is divided equally unless specified otherwise (i.e. partners have agreed in the partnership agreement)

No partner may be excluded from sharing the profits

profits are considered personal income and are taxed as such

partnership - management

unless stipulated otherwise, all partners have the power to manage the partnerships or they can appoint a third party to manage the affairs of the partnership

details of the management of the partnership should be included in the partnership agreement

partnership - transfer of ownership

transfer of ownership is possible

partners agree on how to deal with each partner’s share of assets

partners have the “right of first refusal” - before offering your share of assets to a third party, approach other partners FIRST and they get to decide if they want to buy it from you first.

partnership - termination

agreement of the partners, death, or bankruptcy

Must still file a declaration of cancellation

Regular cancellation - 0

Priority cancellation - $31

Partnership - advantages and disadvantages

Advantages:

• easier access to resources/financing

• split responsibilities

• more diverse knowledge base

• simple start-up and low start-up costs

• easy to dissolve

Disadvantages:

• Unlimited liability

• lack of continuity

• conflict

• transfer difficulties

partnership agreement

Can be verbal, written on a napkin, and actual contract, etc.

Contains the title, location and date, the name of the partners, and clauses about the business (such as termination clauses, ownership percentages, financing clauses etc.) which will be different for each individual business, and then the signatures of the partners (and occasionally some witnesses but not required)

corporation

organization that is a legal person separate from its owner

legal person

not a natural person (i.e. a human) but can do human things such as enter contracts, sue, be sued, etc.

cannot do natural person things like adopt, get married, etc.

corporation - start up

In Canada a business can be incorporated federally or provincially (this decision depends on the geographic

Federal:

• can operate in any province

• must comply to local provincial laws

• higher start up cost because more broad

• must have headquarters anywhere in Canada

Provincial:

• must register in each province individually (can register in mutliple at the same time)

• must get a license in each province (with some exceptions)

• lower start up costs

• must have headquarters in that province (if only one)

To incorporate, must submit an application to the respective government

Must determine by laws for things such as borrowing money, issuing bonds, shareholder meetings, etc.

Must select a name (can be numbers, must not be deceptive or misleading, must not be same/similar to existing names, must include a legal element or be a “trade name” (but not both at the same time), in french unless they operate outside of Quebec)

Get a certificate of incorporation

Corporation - liability

shareholders - liability is only limited to investment (thus this is the only thing they risk losing). They are not bound by the corporations actions. There are exceptions to this:

• for promises to Inc: cannot promise something to the company and then reneg on that promise

• fraud against Inc.: Cannot commit fraud against the company like embezzling funds or smth

• corporate veil: the corporate viel refers to the separation between the actions of the firm and the actions of the shareholders. This exception says that if the legal personality of a corporate entity is invoked for unlawful purposes and shareholders try to hide their. bad acts behind the company, creditors may take direct action against shareholders and directors.

corporation - ownership

2 types of shares:

Common Shares (class A shares)

• voting rights

• last in line for dividends

Preferred Shares (class B shares)

• no voting rights (with some exceptions)

• “guaranteed” dividend % and priority for payment

Note that Class A and class B are the legal names for these types of shares.

Corporation - management

board of directors

officers

shareholders

board of directors

A company under CBCA must have a board of directors (made up of at least 25% Canadian residents) but may have any number of directors (though minimum is 3 if publically traded)

• oversee and set policy for company

• no personal liability, even for bad business decisions, except:

  • failure to disclose any conflict of interest

  • for up to six months of unpaid wages to employees

  • for payment of dividends which would render the corporation insolvent (unable to pay back debt)

Officers

appointed by the board to run day to day operations

• board sets policy while the officers carry it out

Shareholders

possible to take over management role through a unanimous shareholder agreement

Corporation - transfer of ownership

occurs through the buying and selling of shares

corporation - termination

a corporation generally terminates when the shareholders decide to terminate it

even if all shareholders die, the corporation will carry on into perpetuity

corporation - advantages vs. disadvantages

advantages:

• limited liability for shareholders

• continuity

• easier to raise money

disadvantages:

• complex structure, more costs

• less decision-making power

• double taxation (corporation gets taxed and then earnings paid from net income also get taxed)

CBCA

Canada Business Corporation Act

Federal law that regulates the incorporation, organization, and operation of corporations in Canada

QBCA

Quebec Business Corporation Act

Provincial law that governs the creation, operation, and governance of business corporations in Quebec, doing things such as established a framework outlining the duties and responsibilities of directors and officers.

3 basic requirements for an obligation to exist

1) at least 2 parties agree to do something for each other

2) there must be a “prestation”

3) there must be a lawful reason for undertaking this obligation

what is a prestation?

1) payment or performance OR

2) rendering a service OR

3) doing or not doing something

legal vs. natural obligation

legal obligation - sanctioned by law and enforceable before the courts

natural obligation - binds you in conscience only but there’s nothings enforceable against you

2 ways obligations come into existence

1) contracts: most common way of business

2) arise from an act

• example: causing damage to someone’s property or injuring someone

contracts

can be verbal or written (though some contracts like a marriage or mortgage must be written)

parties are bound by legal obligations, enforceable by the court - but people enter it voluntarily

general provisions from the Civil Code are used when a solution to a specific problem is missing in the contract

Contract of adhesion

Conditions are drawn up by only one party. Other party has choice to accept or not.

opposite of mutual agreement

Contracts of mutual agreement

Both parties discuss and agree on all conditions

opposite of contracts of adhesion

bilateral contracts

also called synallagmatic - both parties perform an obligation

opposite of unilateral contract

unilateral contract

only one party undertakes to perform an obligation

opposite of bilateral contracts

onerous contract

each party receives something in return for undertaking an obligation

(ex. person A receives a book, person B receives something)

opposite of gratuitous contract

gratuitous contract

only one party benefits

(ex. donation to charity)

opposite of onerous contracts

commutative contracts

both parties know in detail how much each party will pay/recieve

opposite of aleatory contracts

aleatory contracts

full extent of the obligation is uncertain

opposite of commutative contracts

contracts of instantaneous performance

one-time discharge of the obligation

opposite of contracts of successive performance

contracts of successive performance

obligation to continue to do something on a regular basis

opposite of contract of instantaneous performance

consumer contracts

natural person acquires property/service for personal use

offer

clear, precise, firm proposition containing a genuine intention to enter in a binding contract

• there is an important distinction between offer vs, invitation to make an offer

federal and provincial laws govern misleading advertising and misrepresentation

Acceptance to an offer creates..

a contract

if acceptance differs from the terms in the contract, this is not an acceptance but instead a counteroffer which much then be accepted before becoming a contract

Where is the contract formed

where the offeror is located when they receive acceptance from the offeree

revoking an offer

offeror cannot revoke the offer within the specific period for which the offer is open

ex. cannot issue a coupon for all of January and then not offer it for all of january

Silence as an answer to an offfer

silence cannot be interpreted as an acceptance to an offer —> some say silence indicates refusal but prof would like to say that it indicates nothing, neutrality

7 essential elements for the formation of a contract

(1) an exchange (2) of consents (3) between persons (4) having capacity to consent

(5) can be in any form

(6) a cause

(7) an object (aka. prestation)

(1) an exchange

refers to an exchange of consents

this exchange can be express or tacit

express - clear indication, statement, or yes

tacit - nothing is said, but action indicates acceptance

notes: must be clear when consent is tacit, if there is any possibility for misunderstanding or argumentation, then we assume that tacit consent was NOT given

(2) of consents

consent must be given freely and willingly, with no undue or illegal pressure

4 defects of consent that nullify the consent and nullify the contract

4 defects of consent

error - not a simple or excusable error. Must be a genuine and significant error

fraud - one person tricks another into making an error or gives untrue information

fear - one person uses fear (violence or threat of violence) to extract someone’s consent

lesion - economic harm, taking financial advantage of a person who doesn’t know better.

• can apply to minors and persons under protective supervision

(4) having capacity to consent

Minors and persons under protective supervision are declared legally incapable.

minors

if 14 years or older, considered an 18 year old for business and employment purposes

May validly enter into contracts to after their ordinary and usual needs like clothing, books, and food

May be assisted by a tutor for certain contracts Legally represented by mother and father who are automatically tutors of the minor.

• if parent cannot be tutor: tutor must be supervised by a tutorship council (made up of 3 people appointed by the family)

Under certain conditions a minor can be emancipated where they become a legal adult able to enter into cotnracts

person under protective supervision

can only be declared so by a court after sufficient evidence

3 degrees of protective supervision:

(1) total/permanent = “curator”

(2) partial/temporary = “tutor”

(3) certain acts/limited period of time = “advisor

If the incapability/disability ceases, protective supervision may be ended by the court and legal capacity is restored

(5) can be in any form

there is no particular wording/form required. (unless special form required like for marriages, mortgages, etc.)

(6) a cause

must have a reason for undertaking the contract and though it does not need to be expressed, if the reason is illegal, the contract will be considered invalid

(7) an object (i.e. prestation)

only restriction for this prestation is that it can’t be illegal

Interpretations by CCQ: if words can be interpreted different ways…

uncover the real original intention

Interpretations by CCQ: Must consider the ___ between parties

historical nature of the relationship

Interpretations by CCQ: must interpret clauses in the contract in line with…

other clauses

Interpretations by CCQ: clauses must…

have an effect, otherwise why include it