CORPORATIONS Course Summary Course Code 230B Section 002 Instructor Ron Davis Term 2011W Fall Author Vic Schappert School University of British Columbia Faculty of Law Textbook Yalden et al, Business Organizations: Principles, Policies and Practice (Toronto: Emond Montgomery, 2008) CONTENTS CONTENTS ..................................................................................................................................................................... 1 1. Business Organization .......................................................................................................................................... 5 Framework of Analysis .................................................................................................................................... 5 Glossary of Terms ........................................................................................................................................... 5 Sole Proprietorships ........................................................................................................................................ 6 Partnerships.................................................................................................................................................... 6 General Partnerships ............................................................................................................................... 6 Limited Partnerships.............................................................................................................................. 12 Limited Liability Partnerships ................................................................................................................. 14 A Relationship of Trust anD ConfiDence ................................................................................................. 14 Partnerships Example Problem .............................................................................................................. 14 2. IntroDuction to Corporations ............................................................................................................................. 15 Three Theories of Corporations ..................................................................................................................... 16 Nexus of Contracts ................................................................................................................................ 16 Mediating Hierarchy .............................................................................................................................. 16 Public Institution ................................................................................................................................... 16 Incorporation anD Its Consequences ............................................................................................................. 17 The Corporation as a “Separate Legal Person” ....................................................................................... 17 Limited Liability ..................................................................................................................................... 17 The Process of Incorporation ........................................................................................................................ 19 Articles of Incorporation ........................................................................................................................ 19 When Does a Corporation Begin to Exist? .............................................................................................. 19 Piercing the “Veil” ......................................................................................................................................... 20 Rough Taxonomy of Reasons ................................................................................................................. 20 When the Veil Won’t Be Pierced ............................................................................................................ 21 Insurable Interests Cases ....................................................................................................................... 21 FrauD anD Reasons of Justice ................................................................................................................. 22 Tax Liability ........................................................................................................................................... 22 Enterprise Liability ................................................................................................................................. 22 Tort Liability .......................................................................................................................................... 23 Final Notes on Veil Piercing ................................................................................................................... 23 Pre-Incorporation Contracts .......................................................................................................................... 24 Common Law of Pre-Incorporation Contracts ........................................................................................ 24 CBCA Statutory Regime ......................................................................................................................... 25 1 BCBCA Statutory Regime ....................................................................................................................... 26 Summary of Statutory Regimes ............................................................................................................. 27 Agency .......................................................................................................................................................... 27 Actual Authority .................................................................................................................................... 28 Defective Appointments ........................................................................................................................ 28 InDoor Management Rule (a.k.a. Ostensible Authority) ......................................................................... 28 Management Hierarchy: CBCA ............................................................................................................... 29 Ultra Vires: Boundaries on the Corporation’s Capacity to Act ........................................................................ 29 Ultra Vires Doesn’t Really Exist Anymore ............................................................................................... 29 MoDern Restrictions on Management Authority .................................................................................... 29 Constitutional ConsiDerations ....................................................................................................................... 30 Federal vs Provincial Incorporation ........................................................................................................ 30 Charter Rights........................................................................................................................................ 31 3. Equity Investments ............................................................................................................................................ 33 BunDles of Rights & Obligations, Not Ownership ........................................................................................... 33 Creating New Types of Shares ....................................................................................................................... 34 Class ...................................................................................................................................................... 34 Series .................................................................................................................................................... 34 Issuing Shares ............................................................................................................................................... 35 Par Value Shares are Prohibited............................................................................................................. 35 ConsiDeration for Shares ....................................................................................................................... 35 Authorized Share Capital ....................................................................................................................... 37 Rights Attached to Shares ............................................................................................................................. 37 Minimum Rights .................................................................................................................................... 37 Distribution of Assets on Dissolution of the Corporation ........................................................................ 38 DiviDends .............................................................................................................................................. 38 Rights Attach to Shares, Not ShareholDers ............................................................................................. 39 Debt StanDs Before Equity ..................................................................................................................... 39 Pre-Emptive