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Lecture 17

AFM 231 - Lecture 17 (2013.03.14).doc

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University of Waterloo
Accounting & Financial Management
AFM 231
Sally Gunz

AFM 231 – Business Law Thursday, March 14, 2013 Lecture 17: Organizing the business and corporate governance LAC Minerals  LAC Minerals v. Corona (p. 459)  Corona, a junior mining company, disclosed confidential geological findings to Lac during early negotiations for a joint venture.  Negotiations failed.  LAC used the confidential information to purchase adjoining property.  Corona argued that LAC violated its fiduciary duty and ‘stole’an opportunity that belonged to Corona.  SCC concluded a fiduciary duty was owed even in absence of explicit confidentiality instructions – reasonable expectation of confidence. Shift to how business are organized  Business Law in practice e.g. p. 322: this is a completely realistic example  Not all of you are going to have a daddy who can put up $100,000. But you may well have a family member or friend who will lend you some money.  The critical thing to learn from Chpt. 14 is the risk exposure you and anyone associated with your business faces. Key thing from a practical perspective  The vast majority of new businesses start as sole proprietorships.  Many others are partnerships.  Why? It is cheap and easy.  From a purely practical (not legal) perspective, it may make little difference to you, which form you adopt. Why? Further practical considerations  Assume you, likeAdam, have little money.  If your business venture requires money, who is going to provide you with it?  What will a lender require?  Whatever type of business form you have, the lender will want the most security possible and they also may impose high rates of interest. Assume the lender is also in business – it must do the most it can to minimise its risk.  All lenders fully understand that the majority of new businesses fail. What is a sole proprietorship  It is just you – you and the business are the same thing.  You get all the benefits.  You carry all the risk.  IfAdam owns almost nothing, the worst that can happen to him is he will go formally bankrupt and he will probably lose his one asset, his car. Partnership  Is you and at least one more person.  It is governed by the Partnership Act (provincial)  Critical quality: unless you have a PartnershipAgreement changing this – everything is equally split. See p.p. 325-328. Do you want this?  Even if you have a Partnership Agreement changing this assumption of equality, it only is relevant as between you and your partners.  What does this mean? Critical quality of a partnership  Every partner is an agent for the other partners and the partnership.  They can therefore bind the other partners and the partnership.  They are also individually and collectively responsible for all liabilities.  AND, partnership, just like agency, can be created by estoppel. Watch out Dad and Diane – you may beAdam’s partner, whether or not you intend to be. Is Adam in a partnership with Dad and Diane?  Are they “carrying on a business in common with a view to profit” (definition in PartnershipAct).  Would a reasonable third party (being sensible and careful) think Dad and Diane are partners ofAdam?  It all depends on how they allowAdam to present themselves in dealings with Third Parties. Dad better not get too involved in business decisions. Diane – watch out what you mean by ‘devot[ing] some of [your] time’, etc.  Remember, if Dad and Diane are the only ones with money, third parties owed money will be looking to them very closely. Critical to understand about partnerships  You cannot alter by contract your obligations to third parties i.e. it doesn’t matter if you and your
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