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BUSI 3705U (10)
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Chapter 15

Chapter 15 and 16.docx

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BUSI 3705U

Chapter 15 and 16 Legal Environment of Business The Corporate Form: Operational Matters The Corporation Defined - Predominant business vehicle in modern commerce because it is a separate legal identity - The corporation alone is responsible for its own debts and other liabilities - Should the corporation fail to make good on its obligations, the shareholders are not responsible Stakeholder – one who has an interest in the corporation - Corporate Relationships Pre-Incorporation Issues - Issues To Consider: o Whether to incorporate federally or provincially o What types of shares will be available and to whom o What to name the corporation Shares and Shareholders - Share Structure o A share represents an ownership interest in the issuing corporation o Classes of shares may include a combination of various rights and privileges  voting rights  financial rights  preference rights  cumulative rights  redemption rights Creation of a Corporation - Provincial and Federal Incorporation o federally incorporated corporations have a right to carry on business in each province o provincially incorporated corporations have the right to carry on business only in the province in which they are incorporated Availability of Shares - Widely held corporation- shares are normally traded on the stock exchange (available to the general public) - Closely held corporation- does not sell its shares to the public - Securities legislation- corporations are subject to regulations in those provinces in which the securities are issued or traded Corporate Name - All jurisdictions require a company to be identified by a name or designated number - Must be distinctive - Must not cause confusion with any existing name or trademark - Must include a legal element - Must not include any unacceptable terms - NUANS report- a document that shows the result of a search for a business name Process of Incorporation - Articles of Incorporation →the basic characteristics of corporations and set out the basic features of the corporation including: o Name and place of corporation’s registered office o Class and number of shares o Any restrictions on the transferring of shares o The number of directors o Restrictions on the business that can be carried on Chapter 15 and 16 Legal Environment of Business The Corporate Form: Operational Matters o Any other provisions that an incorporator requires to customize the corporation - Notice of registered office - Notice of directors - Newly upgraded automated search (NUANS) report - Filing fee payable to the Receiver General of Canada Organizing the Corporation - First Directors Call An Organizational Meeting To: o Make bylaws o Adopt forms of share certificates and corporate records o Authorize the issue of shares and other securities o Appoint officers o Appoint auditor o Make banking arrangements o Transact any other business Financing the Corporation - Debt Financing o Corporation may raise money by borrowing o Bonds – document evidencing a debt owed by the corporation, often used to refer to a secured debt o Debentures – a document evidencing a debt owed by the corporation, often used to refer to an unsecured debt o Securities – shares and bonds issued by a corporation - Equity Financing-Shares Are Used To: o Raise money for the corporation o Issued to investors in exchange for price o Provide flexible means of raising capital o Provide opportunity to benefit from corporation’s growth Securities Legislation – Aim - To provide the mechanism for the transfer of securities - To ensure that all investors have the ability to access adequate information in order to make informed decisions - to ensure that the system is such that the public has confidence in the marketplace - To regulate those engaged in the trading of securities - To remove or punish those participants not complying with established rules Technology and the Law - Regulation Of Internet Securities Activities o Internet increases the likelihood of online securities fraud o Regulators – general securities law and traditional principles of jurisdiction apply to Internet activities Security Legislation → any corporation wishing to sell - Securities To The Public Must: o Register o File a prospectus – a statement by the issuing company of prescribed information o Insider trading restrictions – insiders must report any trading they have engaged in - Insider Trading Restrictions o Insider – a person who has a special relationship with a corporation o Insider trading – transactions in shares based on confidential information of a material nature Chapter 15 and 16 Legal Environment of Business The Corporate Form: Operational Matters o Tippee – a person who acquires confidential information from an insider Operational Matters - Corporate Liability o legal consequences of corporate behaviour o Liability in tort – primary liability and vicarious liability o Primary – corporation is regarded as the entity that actually committed the tort in question o Identification theory – a corporation is liable when the person committing the wrong is the corporation’s directing mind o Vicarious liability – liability when the tort has been committed by an agent or employee who is not otherwise a directing mind of the corporation o Same principle applies whether a natural employer – a human being, or an artificial employer – a corporation o Agency law generally determines when a corporation is liable on a contract o Outsiders can now generally rely on the apparent authority of agents – the corpora
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