Law 451 Corporations (O’Byrne) Chapter 1: Choosing the Form of Business Vehicle _______________________________________________ 7 Types of Business Vehicles ________________________________________________________________________ 7 Sole Proprietorship _______________________________________________________________________________________ 8 Corporation _____________________________________________________________________________________________ 9 Unlimited Liability Corporation (ULC) _____________________________________________________________________ 10 Partnership ____________________________________________________________________________________________ 10 General _____________________________________________________________________________________________ 10 Ordinary Partnership __________________________________________________________________________________ 10 Limited Partnership (“LP”) ______________________________________________________________________________ 11 Limited Liability Partnership (“LLP”) ______________________________________________________________________ 11 Joint Ventures __________________________________________________________________________________________ 12 Agency _______________________________________________________________________________________ 12 Agency and Business Law _________________________________________________________________________________ 12 Types of Authority ____________________________________________________________________________________ 12 Liability _____________________________________________________________________________________________ 13 Duties ______________________________________________________________________________________________ 13 Partnership ____________________________________________________________________________________________ 13 Volzke Construction v Westlock Foods (ABCA 1986) – functional test for determining partnership existence ______________ 13 McDonic Estate v Hetherington (ONCA 1997) – liability of partners in an ordinary partnership (not LLP) law firm for misconduct of one partner – Tests for Authority ________________________________________________________________________ 14 Chapter 2: A Background to Corporation _____________________________________________________ 15 Salomon v Salomon (1897 ENG HL) - liability of directors is protected under a corporation – individuals can incorporate ____ 16 History of Corporations __________________________________________________________________________________ 17 Corporate Constitution ____________________________________________________________________________ 18 Purpose _______________________________________________________________________________________________ 19 Corporate Structure _____________________________________________________________________________________ 19 Methods of Creating Corporate Constitutions _______________________________________________________________ 19 Letters Patent (only applies in PEI & Quebec) _____________________________________________________________ 20 Memorandum of Association (MoA) ____________________________________________________________________ 20 Articles of Incorporation ______________________________________________________________________________ 20 Canadian Jorex Ltd v 477749 Alberta Ltd (ABCA 1991) – residuary power held by corporate directors - power to cancel special meetings - shareholder remedies __________________________________________________________________ 20 Chapter 3: The Process of Incorporation ______________________________________________________ 22 Procedures ___________________________________________________________________________________ 22 Choosing Where to Incorporate __________________________________________________________________________ 22 How does one incorporate under the ABCA? ________________________________________________________________ 22 Who can incorporate?: ________________________________________________________________________________ 22 Required Incorporation Documents _______________________________________________________________________ 23 Restricting the transfer of shares upon incorporation: (why do it?) ___________________________________________ 23 Consequences of Incorporation ___________________________________________________________________________ 23 Corporate Records and other matters _____________________________________________________________________ 23 1 Unanimous Shareholder Agreements (USAs) ________________________________________________________________ 24 Cicco v 609940 Ontario Inc (Trustee of) – U.S.A not binding on 3rd party with no notice of restrictive authority of directors – Bankpructy assignment not annulled by USA _______________________________________________________________ 24 Corporate By-Laws ______________________________________________________________________________________ 25 Directors’ Organizational Meeting __________________________________________________________________________ 25 Kinds of Corporations ___________________________________________________________________________________ 26 Loss Prevention – Code of Professional Conduct_____________________________________________________________ 26 Corporate Names ______________________________________________________________________________________ 27 Common Law and Statutory Requirements _______________________________________________________________ 27 Paws Pet Food and Accessories Ltd v Paws and Shop Inc (1992 ABQB) - Misleading corporate name – Court order to change ___________________________________________________________________________________________________ 28 Stenner v Scotia Capital Inc (2007 BCSC) – elements of a Passing Off Action – Subsequent use of family name with goodwill attached not permitted ________________________________________________________________________________ 28 Share Capital ___________________________________________________________________________________________ 30 Equity Financing _____________________________________________________________________________________ 30 Classification of Shares ________________________________________________________________________________ 30 Pre-Incorporation Contracts ______________________________________________________________________ 31 Conflicting Common Law ________________________________________________________________________________ 32 Kelner v Baxter (1866 UK) – promoter liable when entering into Pre-Incorp. Contract ______________________________ 32 Black v Smallwood (1966 Australia HC) – Promoter not necessarily liable in pre-incorp. contract – look to intentions _____ 32 Statutory Reform: e.g. CBCA s. 14 __________________________________________________________________________ 32 Judicial Treatment of Statutory Rules ______________________________________________________________________ 32 Westcom Radio Group Ltd v MacIsaac (1989 ONCA) – Poor Decision – promoter not held liable ______________________ 32 Sherwood Design Services Inc v 872935 Ontario Ltd (1998 ONCA) – conduct required for corporation to adopt contract (dissent in obiter) _____________________________________________________________________________________ 33 Practice Considerations: ____________________________________________________________________________ 34 Szecket v Huang (ONCA 1998) – liability of promoter/agent to be determined by statutory rules, not old CL ____________ 34 Measure of Damages ___________________________________________________________________________________ 34 Wickberg v Shatsky et al (1969 BCSC) – breach of warranty of authority – must be cause of loss to third party - damage measurement ________________________________________________________________________________________ 34 Pre-Incorporation Contracts in Alberta – ABCA s. 15 __________________________________________________________ 35 Chapter 4: The Corporation as a Legal Person _________________________________________________ 36 Summary _____________________________________________________________________________________ 36 One-Person Corporation _________________________________________________________________________ 37 Lee v Lee’s Air Farming Ltd (1961 Privy Council) – director and shareholder of corporation can employ themselves – WCB claim by wife after husband’s death 37 Grounds for Liability of those Behind the Corporation _______________________________________________ 37 Liability based on lifting the corporate veil _________________________________________________________________ 37 Kosmopoulos v Constitution Insurance Co of Canada (1987 SCC) - Salomon principle is not enforced when it yields result too flagrantly opposed to justice ____________________________________________________________________________ 38 Big Bend Hotel Ltd v Security Mutual Casualty Co (1980 BCSC) – corporate veil lifted for corporation being used as a “sham and a cloak” _________________________________________________________________________________________ 38 Performance Industries Ltd v Sylvan Lake Golf & Tennis Club Ltd (2000 ABCA; aff’d by SCC) – lifting the corporate veil for “fraudulent, dishonest, and deceitful” action _______________________________________________________________ 38 2 Jin v Ren (2015 ABQB, aff’d by the ABCA) – unjust enrichment claim – investments retained for improper purpose by director – corporate veil lifted __________________________________________________________________________________ 39 Wildman v Wildman (2006 ONCA) – corporate veil lifted