Business Law Chapter 12.docx

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Management and Organizational Studies
Management and Organizational Studies 2275A/B
Cristin Keller

Business Law Chapter 12: Corporations  The process of incorporation o Can be incorporated provincially or federally. If only incorporated provincially, can only do business within the corporation. o Registration of a company – practice adopted from Britain  Registering with a government body  Used in Nova Scotia o Letters Patent – royal charter approach  Letters patent granted by Crown  Used in Quebec and P.E.I. o Articles of Incorporation – adopted from US  Filing of articles of incorporation and grating of certificate  Used in rest of Canada and federally  Procedure  Has features of both registration and letters patent systems  Not based on contractual relationship  Articles of incorporation contain constitution, purpose, bylaws controlling day-today operation  Government body has no discretion to refuse request o Other incorporated bodies  Cities  Public institutions  Universities  Separate Legal Entity o Incorporation creates a distinct legal entity, separate from the people who own and control it  Isolates shareholders from business activity  Limits liability of shareholders and directors  Provides flexibility for investors to buy and sell shares  Agents are the ones that carry out tasks for corporations o Courts may “lift corporate veil” to get at managers who commit crimes or avoid regulations o Vicarious liability for agents and employees  Contracts  Torts  Capacity o All methods of incorporation now provide for corporations to have all the capacity of a natural person o Power to contract may be limited in certain situations specified in  constating legislation of Crown Corporations, or  other institutions created by special statute  The Role of Agents o All activities of a corporation are carried out by agents  Actual or apparent authority must be established  Employees as agents may be able to bind the corporation  All agents have fiduciary duty to the corporation  Define who’s an agent of the corporation because want to see if the person has the ability to legally bind the corporation to a contract  Look at employment contracts and job description  Fiduciary duty to act in best interests of corporation  Funding o Shares – means of obtaining capital  Par value – company places a monetary value on the share at issue – may not reflect actual value on the market  Non-par value – value of share is determined by the market  Danger of being worse off – Small value on the shares = not a lot of capital  Special Rights and Restrictions o Different classes of shares:  Preferred Shares- Shareholder gets preference when dividends are declared but no vote  If dividends are not paid – preferred shares may convert to common shares (with a vote)  Restriction on the transfer and sale of shares often imposed where the company is closely held  Party to that agreement is between shareholders and the corporation  Borrowing o Bank Loans  Formerly and now less common – debentures and bonds  Modern – General Security Agreement for personal property and mortgage for land  Creates creditor/debtor relationship – Corporation and creditor (banks, etc)  Secured creditor has prior claim over shareholders against assets used as security  Might have to pledge asset, in addition to paying interest
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