Exam review 7 April 2019, questions and answers PDF

Preview

Summary

Exam Review Class 5: chapter 21 basic forms of business organizations Sole proprietorship  Conducts business in his or her own name. there is no separate legal structure or separation between the owner and the business on any level o The owner is exclusively and personal responsible for conducting ...

Description

Exam Review

Class 5: chapter 21 basic forms of business organizations Sole proprietorship  Conducts business in his or her own name. there is no separate legal structure or separation between the owner and the business on any level o The owner is exclusively and personal responsible for conducting the business; o The owner is exclusively and personally liable for all torts and contractual or other breaches in regard to the business o The owner is exclusively and personally liable for all debts of the business; o Income or lo from the business is included directly in the owner’s income or loss  Most suitable for very small enterprises  Legal requirements o Provincial registration of the business name if it is other than the owner’s name; o Business license for certain types of activities (eg. Taxi operation…) Partnership overview  A partnership is a common law business organization later codified in provincial partnership statutes  Partnership types o General partnership o Limited partnership o Limited liability partnership  Legal characteristics of a partnership o Two or more people carry on a business with a view to a profit; o It is not a legal entity separate from the partners; o Subject to any contrary agreement between the partners, if a partner leaves the partnership, it is terminated; o A partnership is called a “firm”  For income purposes at the firm level and then allocated to each partner for inclusion in his or her income according to their entitlement to the profits or losses of the partnership General partnership  Essential characteristics o A partnership does not require for a written partnership agreement or registration (formality) o Only concern is the partnership name o A partnership is not legally separate from the partnership, so:  A partner cannot be an employee of the partnership;  All benefits and liabilities of the partnership accrue directly to the partners. There is joint and several and personal liability  Indications of general partnership o Shared profit and loss o Joint ownership of property o Joint contribution of capital o Joint involvement in the business o Joint access to relevant business information o They represent each other as partners to the others; o They use the partnership name for business purposes; they hire staff for the partnership; o They establish a partnership business address  Partnership property o The partners own all property purchases with partnership funds, as well as property donated to the partnership by a partner; o The property must be used for partnership purposes; o It is not transferable to one of the partners or another person, or returnable to a donor, without the approval of all partners



 











Ontario partnership act o Provides general rules for determining if a partnership exists; o Absent a partnership agreement, the OPA sets out certain default rules governing the partnership relationship o The Act creates mandatory code governing the liability of the partnership to third parties  Each partner is an agent of the partnership and may bind the partnership business. The only exception is where the third partner is aware that the partner did not have the particular authority Partnership agreement o They are not required, but certainly are advisable to supplement and, if desired, modify statutory rules If there is a dispute as to the existence of a partnership, the courts will consider: o Is there profit sharing? o Do they share losses o Are there debt guarantees … Critical general partnership feature o Each partner acting in the normal course of the partnership business binds the partnership under the concept of joint and several liabilities (concept of mutual agency); o Under the concept of the joint and several liability, all partners are personally liable, to an unlimited extent, for the action of the other partners, including any tortious and breach- of – contract liability Managing the risk o Prospective partners should ensure the other partners are trustworthy individuals (eg, through financial disclosure and other background checks); o Partners should have written partnership agreement which includes:  The purpose of the partnership and the rights and duties and liabilities  Criteria for admission and expulsion  Capital contribution requirements  The profit and loss sharing arrangement;  The decision- making process  Provisions for monitoring performance  Provisions for checks and balances (co- signatures on cheques, signing contracts, access to bank accounts, etc)  A dispute resolution process;  Provisions for mutual indemnification  Criteria and procedures for partnership dissolution, including distribution of assets or sharing losses Managing Risk after a Partnership Ends o You remain liable if you continue to hold yourself out as a partner or allow another to do so; o You are not liable if you did not know that you continue to be associated with the partnership o You must ensure third parties know of your departure; o You must delete all public reference to your partnership status on letterhead, signature o You must obtain indemnity from you partners for any post-departure liabilities Internal organization o In the absence of a partnership agreement, the partnership act provides the default rules for the partners’ relationships with each other;  all partners are equal, share in profits equally, are obligated to make equal contribution to the partnership, etc. o if the partners desire a different arrangement, then they should set it out in a partnership agreement  financial arrangement  management structure  business approval requirements  monitoring mechanisms dissolution of partnerships o subject to an agreed- to termination provisions in a partnership agreement, the partnership act provides that a partnership can terminate:  by notice of one partner to the other(s)  automatically on death or insolvency  on completion of any special- purpose partnership or,  at the expiration of a time- limited or project- limited partnership

 1) 2) 3) 4)

priority of Claims on Dissolutions of Partnerships debts and liabilities to non–partners debts to partners (other that advances on capital) return on invested capital to partners any residual paid out to partners in accordance with their partnership interest

Limited Partnership  in limited partnerships, the liability of at least one of the partners is limited or restricted to its investment in the partnership  this is a specialized from of partnership reflected in specific legislation  for legal effectiveness, a limited partnership declaration must be filed with the Registrar appointed under the Business Names Act. o Contrast this with a general partnership, which is effective form the time the partners commence the partnership business  Not all of the partners can be limited partners. At least one of them must have unlimited liability (the general partner)  Limited partners are typically passive investors who desire the tax advantages of partnership status but wish to limit their liability  If limited partners become active in the management or promotion of the partnership, they will lose their limited liability  Lability is limited to the extent of their contribution to the limited partnership  Limited partners may enquire into the state and progress of the limited partnership and may advise as to its management, but cannot take part in the “… control of the business” or allow their names to be included in the firm name What do you think?  Class 5 fact scenario  Priority of Claims 1) Monies owing to non-partners (arrears of rent and bank loan) - $15000 2) Monies owing to partners – john’s $7000 3) Return on invested capital - $4000 each to John and Rita

Limited Liability partnerships  Limited liability partnerships are restricted to certain professions (eg, lawyers, chartered accountants) whose governing organizations permit their members to form these partnerships.  Key feature o A partner is not personally liable for the debts, liabilities or other obligations of the limited liability partnership arising from the wrongful or negligent acts or omissions of another partner of the firm, or any employee or agent under his or her control or supervision, unless the act or omission was criminal or fraudulent or the partner knew, or should have known, of the wrongful or negligent act and did not take steps to prevent it  This limitation of liability does not apply to debts, liabilities or other obligations arising from the partner’s own wrongful or negligent acts or omissions (including those by any agent or employee under his or her supervision), or the debts, liabilities or other obligations of the firm that are not connected to any wrongful or negligent acts of another partner What do you think?  Cases and problems 3, p. 530  In a limited liability partnership, clients no longer have recourse against all the assets of all the partners in the event of any professional negligence by one of the partners  Clients would have recourse, however, against the assets of the fir itself and those of the negligent partner Corporation  Most common form of business organization o Federal or provincial incorporation: Canada Business Corporations Act, or









   





o Ontario Business Corporations Act Essential requirement o Articles of incorporation o Name search report o Fee (minimal) Incorporation process o File articles of incorporation (describing the basic characteristics of the corporation)  Name  Class and number of shares  Number of directors  Restrictions, if any on transfer of shares  Signing authority for contracts, etc  Restrictions on the business First Meeting of Incorporating Directors o To issue shares to shareholders o To pass the general bylaw of the corporation, which describes the “nuts and bolts” of the corporation and the process for conducting its affairs:  Number of directors:  Notice requirements for director and shareholder meetings;  Quorum of director and shareholder meetings:  Officers of the corporation o To remain in effect, the bylaw must be passed by the shareholders at their first meeting after passage by the directors Shareholders Agreement o This is a contract among the shareholders customizing their relationship. Otherwise, they are governed by rules set out in the CBCA or OBCA Characteristics of corporation Is a separate “legal person”; The corporation (not shareholders, officers or directors) carries on business, incurs liabilities, and generates revenue, profits, losses, etc Implications of Legal Personhood o A shareholder can be an employee or creditor of the corporation; o The corporate existence or status is unaffected by any change in shareholders, directors or officers; o The corporation has separate income and tax status. Shareholder gain income from the corporation only by receiving dividends paid on their shares or by selling their shares; o Subject to exceptions, shareholders, directors, officers and employees are not personally liable for the actions of the corporations o Exceptions, only exist where the statute so provides or where a court under the common law may “pierce for corporate veil,” (eg, hold directors liable for environmental offences, or paying employee wages on insolvency, or serious fraud or misconduct); o Ownership is separate from management  Shareholders elect directors who, in turn, appoint the officers to manage the business  Subject to a unanimous shareholders agreement, the legal responsibility for managing resides with the directors (no the officers and not the shareholders) Corporate Financing o Debt financing (issuance of corporate bonds, etc)  A debt holder may sue for payment  Ultimately, if the corporation cannot make its debts payments on an ongoing basis, it may be petitioned into bankruptcy o Shareholder investment or equity  The value depends on the value of the business  A shareholder is not a creditor and has no basis for action against the corporation Shares o Shareholders must have three basic rights:  To elect directors

o o

 To receive dividends  To receive the property of the corporation after the dissolution and payment of debts Rights do not have to be attached to a single class of shares; they can be allocated to different classes  Typically, a corporation will have a class of common shares to which the three basic rights attach A corporation may also have one or more classes of “preference shares”  Dividends are paid on a regular basis and before payment to common shares  On dissolution, the value of preference shares is paid out before common shares  They typically do not have voting rights  They are particularly attractive to the passive investor

Class 6: Chapter 7 Nature and creation of contracts Introduction  A contract is an agreement between two or more parties creating legally enforceable rights and obligations  Virtually everyone enters into one or more contracts every day  The contract is at the heart of the commercial world and of human interaction generally o It is the way business is conducted; o To a significant extent it governs non-commercial personal interaction as well  A contract can be: o Verbal or written (most contracts) o Long or short o Simple or complex o Standard form or negotiated o One sided or balanced o Fair or unfair o Immediate or long term  A contract is not simply a promise by one party to another  There are certain necessary elements for a contract o Mutual intention to create a contract o A meeting of the mind” as to the terms of the contract through “offer” and “acceptance”; o Consideration (exchange of value) from each party to the other(s) Tort vs. contract  a tort is a private duty imposed by the common law  a contract is an express duty, voluntarily entered into by two or more parties  tortious duties apply generally and do not require a special or obvious relationship between parties  contractual duties arise only from a special relationship between the parties to a contract o the legal term for this special relationship is “privity”  damages awarded for the commission of a tort are intended to put the injured parties back into the position they occupied before the tort occurred (“look backward” assessment)  damages for a breach of a contract are intended to place the breached parties in the position they would have occupied if the contract had been fulfilled (“look forward” assessment) Mutual intention to create a contract  mutual intention arises if a reasonable person would believe that the parties intended to create a legally enforceable agreement o the reasonable person standard is objective o it is not concerned with what the parties actually may have intended  in a commercial context, the rebuttable presumption is that the parties intended for an agreement to exist  in a family context, the rebuttable presumption is that no legally enforceable agreement was intended  note for both that the presumption is rebuttable; e.g, you can have a binding agreement between family members what do you think?

  



 

You be the judge 7.1, p. 167 The court determined this to be a mere social arrangement, not a binding contract First question: o There was no proof that Cogan intended to relinquish ownership of the tickets by transferring them to Fingolds name; o There was no clear statement of each party’s rights and obligations Second question: o The lack of writing may suggest the arrangement, if written, may suggest that it was intended to be contractual o Even if it was contractual, the lack of writing made it more difficult to determine the precise terms Third question: Although the arrangement was intended to last for more than one year, it was difficult to conclude on the facts that it was intended to continue forever

Meeting of Minds: Offer and Acceptance  Contract requires offer and acceptance  Parties must mutually agree to terms o One party proposes terms through an offer o Other party agree to terms through acceptance  What constitutes offer? Offer = “willingness to act on certain terms” o Offeror = party making offer o Offeree = party receiving offer  Offeror is the master of the offer o Offeror can set (almost) any terms desired  Risk management: o Contract may be created as soon as offer is accepted  Advertisements are not contracts they are invitations to treat  Invitation to treat: invitation to provide an offer Offer    

In tandem with the intention to create legal relations, parties must go through the process of offer and acceptance Courts have developed criteria for determining what does or does not qualify as a contractual offer The presence of offer and acceptance is a contextualized, factual determination It may be formal and self- evident, or it may be determined from a review of all relevant facts and circumstances o Eg, the past relationship between parties may result in a conclusion that their current behaviour constitutes offer and acceptance o In particular, the law distinguishes an offer from an invitation to treat  An invitation to treat is not an offer o It is an invitation to others to make an offer o The critical question:  From the perspective of an objective, reasonable persons, was the statement and offer or was it an invitation to others to make an offer?  Rebuttable Presumptions: o Items in a store with a price are characterized as invitations to treat; o Advertisements in the media are characterized as invitations to treat What do you think?  You place the following advertisement on kijiji: o “for sale, one sweet ride. 2013 specialized Dolce Elite, excellent condition. Well maintained. $800  Three people email you at the same time saying they will buy the bike for $800  Do you have one contract, three contracts? Are you in trouble?  The kijiji ad is an invitation to treat  The three emails are all “offers” to buy the bike, and you have the right to accept any one or none of them Class 6 Fact scenario 1  R. v. Ron Engineering & Construction (Eastern) LTD., {1981} SCC



 

This case is the authority for the proposition that a call for tenders is both an offer and an invitation to treat o An offer to enter into the irrevocable tendering process, the acceptance of which arises from the submission of the tender: and an invitation to make an offer to provide the product or service under the prescribed terms and conditions The attempt by the contractor to withdraw its tender would breach the contract for the tendering process The acceptance by the contractor of the governments offer to enter into an irrevocable tendering process by submitting its tender is referred to as “Contract A”

 The acceptance by the government of the contractor’s tender to do the work is referred to as “Contract B” Offer 







  

Communication of an Offer o An offer must be communicated and received as an offer; o No particular form of communication is required Revocation of an Offer o An offer may be withdrawn at any time prior to acceptance (revocation must be communicated effectively to a potential offerees) An offer is not revocable if it included a promise to remain open for a prescribed period of time, and either: o The promise was placed under seal (deemed consideration) or; o The offeree(s) paid for a commitment that it would remain open (eg, purchased an option) Lapse of time o An offer may be expressly limited in time; otherwise, it will lapse after a reasonable period; o What is “reasonable” varies with the nature of the industry, the subject matter of the proposed contract, etc Rejection of the Offer Counter – offer o The offeree responds by offering to enter into a contract on different terms “battle of the Forms” o each party claims to have contracted under its own standard terms and conditions o a legal problem arises where the agreement has already been performed.

What do you think?  CASES AND P...