Management and Organizational Studies 2275A/B Chapter Notes - Chapter 16: Regulatory Offence, Law Of Agency, Corporate Law

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Business Law
Textbook Notes- Ch. 16
The Corporate Form: Organizational Matters
Corporate Liability
A corporation is a legal person in the eyes of the law
The law has developed rules regarding how a corporation can be said to have
committed a tort, committed a crime or regulatory offence, or entered a contract
Liability in Tort
o Two distinct kinds of liability in tort: primary liability and vicarious liability
o A corporation has primary liability for a tort when, in law, it is regarded as the
entity that actually committed the tort in question
o Identification Theory of Corporate Liability
A theory specifying that a corporation is liable when the person
committing the wrong is the corporations directing mind
o A corporation has liability when the person committing the wrong was the
orporatios diretig id ad ill
o When that person or persons commit a tort related to the business enterprise,
this conduct is identified with or attributed to the corporation itself
o Highl plaed orporate offiers ho are lassified as diretig id
o A corporation may have more than one directing mind
o A corporation has vicarious liability when the tort as been committed by an
agent or employee who is not directing mind of the corporation
Liability in Contract
o Agency law largely determines when a corporation is liable on a contract and
when it is not
o A corporation is bound by the actions of the agent only if the agent is acting
within his actual or apparent authority
o To avoid personal liability, the person singing 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 singing in her
person capacity
o Pre-incorporation contracts are contracts that have been entered into by the
opa’s prooters o ehalf of the orporatio efore it has ee ee
created
o Promoter
Someone who participates in setting up a corporation
o Pre-incorporation 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 Liability
o Criminal Liability
Identification Theory
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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
The amendments expand the range of individuals whose actions can
trigger liability of the corporation
The definition focuses on the function of the individual, rather than any
particular title
The amendments also address both crimes requiring proof of knowledge
or intent and crimes requiring proof of negligence
o Regulatory Offences
Statutory enactments related to taxation, human rights, pay equity,
employment standards, consumer protection, unfair or anticompetitive
business practices, occupational health and safety, and environmental
protection
Regulatory offence
An offence contrary to the public interest
Regulatory offences have a criminal aspect because they involve some
kind of punishable conduct that is contrary to the public interest
Directors and Officers
The directors, who are elected by shareholders, manage, or supervise the management
of the business and the affairs of the corporation
Directors are not usually in a position to carry out the actual management themselves;
generally, they are authorized to appoint officers to carry out many of their duties and
exercise most of their powers
Duties of Directors and Officers
o The Fiduciary Duty
This duty requires directors and officers to act honestly and in good faith
with a view to the best interests of the corporation
One of the central principles informing fiduciary duties in corporate law
can be summarized as follows: directors and officers must not allow their
personal interest to conflict with their duty to the corporation
The Self-Dealing Contract
A contract in which a fiduciary has a conflict of interest
Many jurisdictions have enacted procedures through which self-
dealing contracts are permissible
Uder the Caada Busiess Corporatios At, Luke’s otrat to
sell furniture to his own company will be enforceable provided
that
o Discloses the contract to the corporation in writing
o Does not participate in any vote of the directors approving
the contract
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o The contract is fair and reasonable to the corporation
Corporate Opportunities
A business opportunity in which the corporation has an interest
Directors and officers are often required to assess any number of
projects in which their corporation could become involved
If the directors and officers were permitted to take up any of
these opportunities for themselves, problems very much like the
ones present in the self-dealing contract scenario would arise
o The Duty of Competence
This duty requires directors and officers to exercise the care, diligence,
and skill that a reasonable prudent person would exercise in comparably
circumstances
The present standard contained in corporation legislation requires
directors and officers to display care, diligence, and skill that a reasonably
prudent person would exercise in comparable circumstances. This is an
objective standard, and while directors are not expected to be perfect,
they are to act prudently and on a reasonably informed basis
Liabilities of Directors and Officers
o Liability in Tort and Contract
When a director is acting on behalf of a corporation and commits a tort,
his actions may be attributed to the corporation itself by virtue of the
identification theory
As agent for his corporation, his actions make the corporation the other
party to that contract and the director slips out of the equation
altogether
Liability in Tort
Some courts have ruled that directors are not personally liable
provided that they were acting in furtherance of their duties to
the corporation and their conduct was justifiable. Other courts
have opined that personal liability is confined to actions that are
tortuous i theseles or that ehiit a separate idetit or
interest from that of the corporation so as to make the act or
odut oplaied of their o
Where the diretor’s odut is etree, she ill e foud liale
for committing a tort regardless of the approach taken by the
court in question
Liability in Contract
The principles of agency operate in such a way that the
corporation is liable to the outsider and the director who has
acted as agent for the corporation drops out of the transaction
A director faces personal liability on a contract if the facts indicate
that the director intended to assume personal liability, as when
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