Sole Proprietorship.docx

**Sole Proprietorship** - **Benefits:** - Simplicity - Speed and independence - Profit motive - Lower costs - Tax benefits---can claim business expenses - Control over decision-making - **Risks:** - Unlimited personal liability for all debts and...

**Sole Proprietorship** - **Benefits:** - Simplicity - Speed and independence - Profit motive - Lower costs - Tax benefits---can claim business expenses - Control over decision-making - **Risks:** - Unlimited personal liability for all debts and obligations of the business - Limited access to capital (can only borrow) - Limited lifespan (dies with owner) - Tax disadvantages (must claim all business income with personal taxes) - Working alone (but can have employees) - **Opening:** - Easy to set up - No specific legislation required, but may need to obtain a business license and register a trade name - **Closing:** - The business ends with the owner's decision or death **Key Factor in Deciding Business Form** - Considerations include the nature of the business, the need for capital, the desire for control, the extent of liability the owner is willing to assume, and tax implications. **Partnership** - **Definition:** - A business carried on by two or more persons with the objective of making a profit. - It is a legal relationship where the business does not have a separate legal personality from the partners. - **Charitable, Not-for-Profit Allowed?** - No, it excludes charitable and not-for-profit organizations. - **Liability of Partners:** - Partners have joint and several liability, meaning they are individually and collectively liable for all debts and obligations of the partnership. **Types of Partnerships** - **General Partnership:** - All partners have unlimited liability for the debts and obligations of the partnership. - **Limited Partnership:** - At least one partner has unlimited liability (general partner), while others (limited partners) have liability limited to their capital contribution. - **Limited Liability Partnership (LLP):** - Partners have unlimited liability for their own malpractice but limited liability for other partners' malpractice. **Corporation** - **Who Owns a Corporation?** - The shareholders own the corporation. - **Directors - Elected by?** - Directors are elected by the shareholders to manage the corporation. - **Protection Against Liability:** - While corporations provide limited liability protection for shareholders, this protection is not absolute. **Franchise** - **What is a Franchise?** - A franchise is a contractual agreement between a franchisor (manufacturer/wholesaler/service organization) and a franchisee (independent business) who buys the right to own and operate units of the franchise. The franchisor owns the trademark or trade name, and the franchisee sells under that trade name. **Joint Venture, Strategic Alliance, Franchise, Dealerships, and Licensing Products** - **Joint Venture:** - An association of business entities that unite to carry on a business venture, sharing profits and losses. It can be structured as a partnership, an equity joint venture (with a separate corporation), or a simple contractual agreement. - **Strategic Alliance:** - A cooperative arrangement among businesses that may involve joint research, technology sharing, or joint use of productions. It does not have a precise legal meaning. - **Franchise:** - A business arrangement where an independent business (franchisee) operates under the trade name of another business (franchisor), following specific rules and paying royalties. - **Dealerships:** - A business arrangement similar to a franchise, where one business agrees to sell another's products, typically seen in industries like automotive and computers. - **Licensing Products:** - The owner of a trademark or proprietary right grants the right to manufacture or distribute its products to another, often within a specified geographical area. Common in industries like clothing, sporting goods, and entertainment-related merchandise. **Corporate Organization** **Corporation vs. Sole Proprietorship Differences, Costs** - **Corporation:** - **Separate Legal Identity:** The corporation is a distinct legal entity, responsible for its own debts and liabilities. - **Costs:** Generally, higher setup and operational costs due to legal, regulatory, and administrative requirements. - **Sole Proprietorship:** - **Single Ownership:** The business and the owner are legally the same, meaning personal liability for all debts and obligations. - **Costs:** Lower initial setup costs and fewer regulatory requirements. **Public vs Private Corporations Shares** - **Public Corporation:** - Shares are available to the public and usually traded on a stock exchange. - Subject to securities legislation. - **Private (Closely Held) Corporation:** - Shares are not available to the public and are usually held by a small number of shareholders. - Not subject to securities legislation, often enjoys lower tax rates. **Legislation in Selling/Trading Stocks & Bonds, & Where Are They Sold?** - **Legislation:** Securities legislation governs the sale and trading of stocks and bonds to ensure investor protection, transparency, and confidence in the market. - **Where Sold:** Stocks and bonds are primarily sold on stock exchanges and through other authorized trading platforms. Corporations must register and file a prospectus to sell securities to the public. **Defining Document of a Corporation** - **Articles of Incorporation:** The fundamental document that defines the corporation's structure, purpose, and basic characteristics. It is filed during the incorporation process. **What Are Securities?** - **Securities:** Financial instruments that represent ownership (e.g., shares) or a creditor relationship (e.g., bonds) with a corporation. They include shares, bonds, and debentures. **Who Hires Corporate Officers?** - **Corporate Officers:** High-level employees, such as the president, secretary, and treasurer, are appointed by the directors of the corporation. **What Is a Prospectus?** - **Prospectus:** A formal document required by securities legislation that provides details about an investment offering to the public, ensuring potential investors have all necessary information to make informed decisions. **Differences in Classes of Shares** - **Classes of Shares:** Shares may have different rights and privileges, including: - **Voting Rights:** Some shares may carry more voting power. - **Financial Rights:** Rights to dividends and share in profits. - **Preference Rights:** Preference over other shares in receiving dividends or in liquidation. - **Cumulative Rights:** Rights to accumulate unpaid dividends. - **Redemption Rights:** Rights for the company to buy back shares. **What Is Equity Financing?** - **Equity Financing:** Raising capital by selling shares in the corporation. This method provides a flexible way to generate funds and allows investors to gain ownership and potentially benefit from the corporation's growth. **Rights to Dividends** - **Dividends:** Shareholders may receive dividends, which are payments made out of a corporation's profits. The right to dividends varies based on the class of shares held. **Personal Liability in the Corporation - and Exceptions** - **Personal Liability:** Shareholders generally have limited liability, meaning they are not personally responsible for the corporation\'s debts beyond their investment. However, this protection is not absolute and can be challenged in cases of fraud or personal guarantees. **What Is Insider Trading - Give an Example** - **Insider Trading:** The buying or selling of a corporation's shares based on material information not available to the public. - **Example:** A corporate executive selling shares in their company after learning that the company will soon announce a major loss, before the public is informed. **Naming Your Business - What Is the Database Search Called?** - **NUANS Report:** A document that shows the results of a search for a business name to ensure it is not already in use, required before a corporation's name is finalized. **Buying Shares from Competitors** - **Buying Shares from Competitors:** This involves purchasing stock in a competitor's company, which can be part of a strategic investment, gaining insight, or influencing competition, subject to regulatory scrutiny and strategic considerations. **Identification Theory** - **Definition**: The identification theory is used to determine when a corporation can be held primarily liable for a tort or crime. - **Application**: A corporation is liable when the person committing the wrong is considered the \"directing mind\" of the corporation---someone who exercises decision-making authority on corporate policy. This person\'s actions are deemed to be the actions of the corporation itself. **Lifting the Corporate Veil** - **Definition**: Lifting the corporate veil refers to a legal decision where a court disregards the corporation\'s separate legal personality and holds shareholders personally liable. - **Application**: This is rarely done and typically requires proof that the corporation is a mere facade for fraudulent or improper conduct. It is usually invoked when there is complete domination and control by shareholders, and the corporate form is used as a shield for wrongful actions. **Oppression Remedy & Derivative Action** - **Oppression Remedy**: A legal action where shareholders claim that the corporation\'s actions have oppressed or prejudiced their interests. This is the most commonly used remedy for shareholder disputes. - **Derivative Action**: A lawsuit brought by a shareholder on behalf of the corporation to enforce a corporate cause of action. This action helps prevent directors from using the corporation for personal gain. **Delegation of Authority - Share Dividends** - **Authority of Directors**: Directors have the authority to declare dividends, which are distributions of a corporation\'s earnings to its shareholders. The delegation of this authority is part of the board's responsibilities in managing corporate finances and rewarding shareholders. **Self-Dealing Contracts & Fiduciary Duty** - **Self-Dealing Contracts**: Contracts where a fiduciary (like a director) has a conflict of interest, such as selling their own goods to the corporation. There are provisions allowing such contracts if they benefit the corporation, but they must be managed carefully to avoid conflicts. - **Fiduciary Duty**: Directors and officers must act honestly, in good faith, and in the best interest of the corporation. They cannot prioritize personal interests over those of the corporation or exploit corporate opportunities for personal gain. **Duties of Shareholders** - **Shareholder Rights & Duties**: Shareholders do not have fiduciary duties like directors but have rights such as voting, receiving information, and financial rights (e.g., dividends). They are not obligated to act in the corporation\'s best interests and can compete with the corporation. **Classes of Shares** - **Common Shares**: Typically include voting rights, a share in dividends, and a share in the proceeds on dissolution. - **Preferred Shares**: Usually have preference in the distribution of dividends and the proceeds on dissolution but may lack voting rights. **Obligations of Directors and Officers** - **Duties**: Directors and officers must manage the corporation\'s affairs with care, diligence, and skill. They have fiduciary duties to act in the best interest of the corporation and a duty of competence to perform their roles effectively. - **Liabilities**: Directors and officers can be personally liable for torts, contracts, and statutory breaches (e.g., failing to pay taxes or wages, insider trading). They can protect themselves through indemnification agreements and liability insurance. **Definition of Real Property vs. Personal Property** - **Real Property**: Refers to land or real estate, including buildings, fixtures, mineral rights, and leases. It encompasses everything on the land, above it, and below it, along with any associated legal rights. - **Personal Property**: Not explicitly defined in the provided slides, but in general, personal property refers to movable items that are not permanently attached to or part of the land, such as furniture, vehicles, and other belongings. **What Are Fixtures?** - **Fixtures**: These are tangible personal property items that have become attached to the land, buildings, or other structures in such a way that they are considered part of the real property. Examples might include built-in appliances, lighting fixtures, or plumbing installations. Once attached, fixtures are usually treated as part of the real estate and are included in the sale of the property.  **Letter of Credit:** - A letter of credit is issued by international banks and is a written promise made by the importer's bank to the exporter's bank to make payment upon specific conditions being met. It is typically used in international trade to reduce the risk of non-payment.  **Default, Subrogation, Acceleration Clause:** - **Default:** When a borrower fails to meet the legal obligations (or conditions) of a loan agreement. - **Subrogation:** The right of a guarantor to recover from the debtor any payments made to the creditor. This occurs when the guarantor has paid off the debt and now seeks reimbursement from the debtor. - **Acceleration Clause:** A term in a loan agreement that makes the entire loan due immediately if the borrower misses one payment. This clause protects lenders by allowing them to demand full repayment if the borrower defaults.  **General Security Agreement:** - A General Security Agreement (GSA) is a loan contract that includes all of the assets of a business as collateral. It allows the lender to have a security interest in all present and future assets of the borrower, providing more protection in case of default.  **Guarantee/Guarantor Defined:** - **Guarantee:** A contract between a creditor and a guarantor where the guarantor makes a conditional promise to pay a debt if the debtor defaults. - **Guarantor:** The person who provides the guarantee, promising to pay the debt if the original debtor fails to do so.  **Collateral:** - **Definition:** Collateral refers to property or assets that a borrower offers to a lender to secure a loan. If the borrower defaults, the lender can seize and sell the collateral to recover the owed amount. - **Use of Collateral:** Collateral is used to reduce the lender\'s risk. It provides security that the lender can claim if the borrower fails to repay the loan.  **Priority in Security Interests - Attachment, Perfection, Registration, PPSA:** - **Attachment:** Occurs when the debtor has rights in the collateral, the lender has provided value, and the debtor has signed a security agreement. This makes the security interest enforceable against the debtor. - **Perfection:** The combination of attachment and registration of the security interest, which gives the lender priority over other creditors. - **Registration:** Involves recording a financing statement to make the security interest public and establish the lender\'s priority. - **Personal Property Security Act (PPSA):** A legislative framework that governs the use of personal property as collateral in secured transactions, detailing the rights and priorities of secured parties.  **Co-signing a Loan:** - When a person co-signs a loan, they become equally responsible for repaying the debt. If the primary borrower defaults, the co-signer is legally obligated to pay the loan.  **Maximum Allowable Interest Rate in the Criminal Code:** - The maximum allowable interest rate under the Criminal Code is 60% annually, with some exceptions for payday loans under \$1,500, which may have much higher rates.  **Fee Simple, Joint Tenancy, Tenancy in Common, Life Estates, Easements, Covenants:** - **Fee Simple:** The highest form of property ownership in real estate law. It represents complete ownership of a property, including the land and any buildings on it, with the right to use, sell, or bequeath it. - **Joint Tenancy:** A form of property ownership where two or more people own a property together with equal shares, and when one owner dies, their share automatically passes to the surviving owner(s). - **Tenancy in Common:** A form of co-ownership where each owner holds a distinct, separate share of the property, which can be sold or passed on to heirs independently. - **Life Estates:** A type of property ownership where an individual holds the right to use the property for their lifetime, but does not own the property outright. Upon their death, the property passes to another designated individual or reverts to the original owner. - **Easements:** A legal right to use another person's land for a specific purpose, such as a right of way for access to a road. - **Covenants:** Legally enforceable agreements or restrictions on the use of property, often related to maintaining certain standards or prohibiting specific uses.  **Land Titles System vs. Land Registry System:** - **Land Titles System:** A system where the government guarantees the title of the land. The ownership of land is registered and the title document is conclusive evidence of ownership, reducing the risk of disputes over land ownership. - **Land Registry System:** An older system where the ownership of land is recorded but not guaranteed by the government. It requires a thorough examination of historical records (title deeds) to verify ownership.  **Right of Buyers to Examine Property, Caveat Emptor:** - **Right of Buyers to Examine Property:** Buyers have the right to inspect a property before purchasing to ensure it meets their expectations and to identify any potential issues. - **Caveat Emptor:** A legal principle meaning \"let the buyer beware.\" It places the responsibility on buyers to conduct due diligence before purchasing a property, as they assume the risk of any defects or issues not discovered during their inspection.  **The Tort of Nuisance in Property Purchases:** - **Tort of Nuisance:** A legal claim that can be made when a property owner's use of their property unreasonably interferes with the use and enjoyment of neighboring properties. In property purchases, it's a concern if the buyer discovers that a neighboring property is causing such an interference.  **Definition - Mortgagor, Mortgagee:** - **Mortgagor:** The borrower in a mortgage agreement who pledges their property as security for a loan. - **Mortgagee:** The lender in a mortgage agreement who provides the loan and holds the legal claim (mortgage) on the property until the loan is repaid. **Insolvent vs Bankrupt** - **Insolvent**: Refers to a state where an individual or business is unable to meet financial obligations as they become due or having insufficient assets to meet financial obligations if liquidated. - **Bankrupt**: The legal status of a debtor who has made an assignment or against whom a bankruptcy order has been issued. Bankruptcy is the legal process of transferring assets of the bankrupt to a trustee for liquidation and distribution to creditors. **Assignment in Bankruptcy** - **Assignment in Bankruptcy**: This is a voluntary process where the debtor assigns legal title to their property to a trustee in bankruptcy for the benefit of creditors. **Trustees\' Role** - **Trustees\' Role**: The trustee in bankruptcy is legally responsible for administering bankruptcies and proposals under the Bankruptcy and Insolvency Act (BIA). The trustee's duties include securing the business, assessing and preparing statements of assets and liabilities, disposing of assets, and distributing proceeds to creditors. **Student Loans in Bankruptcy** - **Student Loans in Bankruptcy**: Student loans typically survive bankruptcy unless the debtor has been out of school for more than seven years. Debts arising from student loans may not be discharged unless certain conditions are met. **A Reorganizational Contract to Continue Business (Proposal)** - **Proposal**: A proposal is a contractual agreement governed by the BIA that allows a debtor to restructure its debt in order to avoid bankruptcy. The debtor can retain assets and continue business operations while reducing the amount owed to creditors or extending the payment period. **Priority of Payment to Creditors** - **Priority of Payment to Creditors**: The BIA outlines the priority in which creditors are paid during the bankruptcy process: 1. **Secured Creditors**: These creditors have perfected security interests and can seize and sell collateral. 2. **Preferred Creditors**: These include certain unsecured creditors who have priority over others, such as arrears in wages, trustee fees, and municipal taxes. 3. **Unsecured Creditors**: The remaining funds, if any, are paid to ordinary unsecured creditors in proportion to the amounts they are owed. **Ontario Definition of Marriage** In Ontario, marriage can be established through a civil ceremony or religious service. The law views marriage as an equal economic partnership, meaning that, upon dissolution, property acquired during the marriage and any increase in the value of pre-marital property are generally divided equally. **Rights to Matrimonial Home in Common-Law Relationships** Common-law partners do not automatically have the same rights as married couples regarding the division of property or the right to stay in the family home. If a common-law relationship ends, one partner may need to prove contributions to the property to claim a share. However, in support orders, a common-law partner can request to stay in the shared home or receive reimbursement for repairs. **Definition of Divorce - Requirements** In Canada, a divorce legally ends a marriage. The grounds for divorce include: 1. **Separation:** Living apart for at least one year (reconciliation for up to 90 days does not disrupt this period). 2. **Adultery:** If one spouse commits adultery and the other spouse has not forgiven them or continued living together for more than 90 days after discovering the adultery. 3. **Cruelty:** Physical or mental cruelty making it impossible to continue the marriage. **Calculator for Equalization Payments** To calculate equalization payments, follow these steps: 1. **Determine Net Family Property (NFP):** - **Value at Separation:** Total value of property at separation. - **Subtract Debts:** Debts owed at separation. - **Subtract Excluded Property:** Inheritances, gifts, etc. - **Subtract Pre-Marital Property Value:** Property owned at marriage minus debts. 2. **Calculate Equalization Payment:** - **Find the Difference:** Between the NFPs of both spouses. - **Divide by Two:** To determine how much one spouse owes the other to equalize their net family property. **Example Calculation:** - **John\'s NFP:** \$47,000 - **Jane\'s NFP:** \$12,000 - **Subtract Debts and Excluded Property:** - John\'s Debts: \$8,000 - Jane\'s Debts: \$2,000 - John\'s Excluded Property: \$4,000 - Jane\'s Excluded Property: \$0 - John\'s Property Owned at Marriage minus Debts: \$18,000 - Jane\'s Property Owned at Marriage minus Debts: \$8,000 - **John\'s Final NFP:** \$17,000 - **Jane\'s Final NFP:** \$2,000 - **Equalization Payment:** - Difference: \$17,000 - \$2,000 = \$15,000 - Payment: \$15,000 ÷ 2 = \$7,500 John must pay Jane \$7,500 to equalize their property division. This calculation ensures that each party ends up with an equal share of the family property accumulated during the marriage.