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Law - Chapter 14.pdf

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Western University
Economics 2223A/B

Chapter 15Chapter 16 The Corporate Form Operational Matters Corporate Liability A corporation is a legal person in the eyes of the law Liability in Tort A corporation can experience two distinct kinds of liability in tort primary liability and vicarious liabilityA corporation has primary liability for a tort when in law it is regarded as the entity that actually committed the tort in questionIdentification theory A theory specifying that a corporation is liable when the person committing the wrong is the corporations directing mind o This helps to identify the personpersons who are the directing mind of the corporationo The liability of the corporation is thereby made directnot vicariousbecause in law the conduct of the directing mind is the conduct of the corporationA corporation has vicarious liability when the tort has been committed by an agent or employee who is not a directing mind of the corporation The law of vicarious liability does not distinguish between the natural employerprincipalthat is a living breathing human beingand the artificial employerprincipalthat is a corporation Instead the same principle applies to both Liability in Contract Agency law largely determines when a corporation is liable on a contract and when it is notA corporation is bound by the actions of the agent only if the agent is acting within his actual or apparent authorityTo avoid personal liability the person signing a document on behalf of a corporation should ensure that the document contains a clause clearly indicating that the person is signing on behalf of the corporation and is not signing in her personal capacityPreincorporation contracts are contracts that have been entered into by the companys promoters on behalf of the corporation before it has even been created o Such contracts are governed by federal and provincial corporate law statutes which permit the company to adopt the contractsomething that was impossible to do at common law o When adoption occurs the corporation assumes liability on the contractPreincorporation contracts can be problematic if they do not indicate clearly who is intended to be liable and if the corporation fails to come into existence Criminal and Regulatory LiabilityCriminal Liability The criminal liability of a corporation poses the same conceptual problems as tort liabilityThe judiciary solved this problem by adapting the identification theory to the criminal law scenario o The theory maintains that a corporation has committed a crime if the person who committed the crime was a directing mind of the corporation and he committed it in the course of his duties and did so mostly for the benefit of the corporation o A directing mind of a corporation is an individual who exercises decisionmaking authority in matters of corporate policy o This way posed a problem because of the difficulty in proving beyond a reasonable doubt that the directing mind behaved in a criminal mannerThe amendments increased the scope of potential criminal liability of corporations by expanding the range of individuals whose actions can trigger liability by broadening corporate responsibility for all criminal offences and by increasing the penaltiesPrior to the amendments a corporation could be liable for a criminal offence only if the directing mind of the corporation committed the offence o The amendments expand the range of individuals whose actions can trigger liability of the corporation to senior officers o The definition focuses on the function of the individual rather than any particular titleThe amendments also address both crimes requiring proof of knowledge or intent and crimes requiring proof of negligenceFor offences that require intent an organization will be criminally liable if a senior officer while acting in the scope of his or her authority and intending at least in part to benefit the organization either actively engages in unsafe conduct directs representatives12 to do it or knows about the unsafe conduct but does nothing or not enough to put a stop to it and death or injury resultSenior officers are now under a positive obligation to act when they have knowledge that an offence has been or will be committed failure to act will result in corporate criminal liabilityFor offences based on negligence an organization can be convicted if any representative providing services for the organization causes injury or death by unsafe conduct and the senior officer or officers in charge of the activities of the representative departs markedly from the reasonable standard of care necessary to prevent the incident The legislation also enumerates factors that the courts must consider when setting fines including moral blameworthiness ie the economic advantage gained by the organization by committing the crime public interest ie the cost of investigation and prosecution the need to keep the organization in business and the prospects of rehabilitation remedial steps directed to preventing the likelihood of a subsequent offenceA corporate probation order may involve conditions such as providing restitution to victims publishing the offence in the media and implementing policies and procedures Regulatory Offences
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