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					      Liability of a Partner
        in a Partnership
   Partnership not legally separate from
    partners
   All partners have joint and several
    liability for partnership debts and torts
    – Each partner is personally liable for 100%
      of all debts and judgments
 Joint & Several Liability

Partner A      Partner B         Partner C



              Partnership



            Partnership Assets
             Value $30,000
 Joint & Several Liability

Partner A      Partner B         Partner C

                                              Client
                                             $100,000
              Partnership



            Partnership Assets
 Joint & Several Liability

Partner A      Partner B         Partner C



              Partnership



            Partnership Assets
                                         Disappears with
                                         the $100K
 Joint & Several Liability

Partner A      Partner B
                                 $70,000 from Personal Assets


              Partnership
                                      Client


            Partnership Assets
                 $30,000
    Partnership Agreement

   Cannot limit liability to non-partners
    – Can state who is liable amongst the
      partners, but each partner is still 100%
      jointly and severally liable to non-partners
    Duties to Your Partners

   Cannot take secret benefits
   Cannot compete
   All partners entitled to complete
    information
   Can vary any duties if the partnership
    agreement states so
    – Very common to do so
          Limit information, allow competition
             Limited Liability
               Partnerships
   LLP
   Only professions regulated by a Statute
    allowed to form LLP’s
   Must Register with Provincial Gov’t
   Removes Joint and Several Liability
    – Only liable for partnership assets for partnership
      torts and contracts and then personally for own
      torts
          scope of “own torts” may be wider than “innocent”
           partners would want.
              LLP Liability

Partner A      Partner B
                                 $100,000 stolen
                                 $70,000 Unpaid
              Partnership
                                     Client


            Partnership Assets
                 $30,000
                Corporations

   Separate Legal Person
   Can have one shareholder or many
   Taxed at corporation level
   Limited liability
    – No personal liability for contracts or torts
      of the corporation
          Can only have personal liability for torts if
           personally at fault
            – Example: Shareholder/President defames a person
         Corporate Liability

Shareholder A       Shareholder B   Shareholder C



                  Corporation


                Corporate Assets
         Corporate Liability

Shareholder A     Shareholder B
                                   $100,000 Stolen by C

                 Corporation       $70,000 Unpaid
                                        Client


                Corporate Assets
                    $30,000
    Protection of Creditors

   Must use proper ending to name on
    contracts
    – Inc, Incorporated, Corporation, Limited or
      Ltd.
   Personal Guarantees
       How to Incorporate

   Fill out Articles of Incorporation
    – File with government and pay fees
   Name restrictions
    – Can be just a number
          600340 Saskatchewan Ltd
    – Must be distinctive – cannot lead to confusion
    – Proper ending – Ltd. Inc. , etc.
   Pass bylaws
       Management of the
          Corporation
   Shareholders appoint a Board of
    Directors
    – Elect after first appointment
    – C.E.O. and other Officers Appointed
   One individual can be a shareholder, a
    director, an officer and a creditor
        Duties of Directors
   Manage and Supervise
    – High level, not day to day details
    – Exercise due diligence
   Must avoid conflicts of interest
    – Duty to the corporation not to themselves
   Cannot intercept corporate opportunities
   Cannot compete
   Owe a duty to all stakeholders to a varying
    degrees
        Directors’ Personal
             Liability
   Breaching their duties – corp will sue them
   Unpaid wages for 6 months
   Withholdings (EI, CPP, tax) for 6 months
   Numerous statutory obligations
   Not personally liable for corporate debts or
    judgments against the corporation
   Protection for directors
    – Corporate indemnity
    – Director’s liability insurance
   Applies to Non-Profit Corporations
      Shareholder’s Rights

   Depends on the class of share
    – Right to vote and elect directors
    – Dividends – if directors authorize
    – Remaining property after all creditors paid
   Right to information
    – Financial Statements
    – Annual Reports
    – Loans to directors, employees or shareholders
Shareholders’ Agreement

   Right to be employed in a position
   Right to be a director
   Restrictions on type of business
   Dividend policy
   Right of first refusal on sale of shares
    – How to value shares
   Deadlock breaking procedure
   Anything important to a shareholder
    Minority Shareholder
        Oppression
   Majority has the right to run the
    corporation
    – Subject to Shareholders’ agreement
    – Subject to Court protection
       Oppression   remedy
         Oppression Example
Shareholder A            Shareholder B           Son of B
(Employee & Director)   (Employee & Director)   (Employee Only)
 (Salary & Dividends)    (Salary & Dividends)       (Salary)

           50%                50%                  0%




                        Corporation


                             Assets
              A and B each sell
            2 1\2 % to Son of B
Shareholder A            Shareholder B             Son of B
(Employee & Director)   (Employee & Director)       (Employee)
 (Salary & Dividends)    (Salary & Dividends)   (Salary & Dividends)

           47.5%              47.5%                  5%




                        Corporation


                             Assets
  B and Son of B fire A and vote
themselves to be the two directors
Shareholder A         Shareholder B              Son of B
(Shareholder Only)   (Employee & Director)   (Employee & Director)
                       (Raise and Bonuses)     (Raise and Bonuses)

          47.5%             47.5%                  5%




                     Corporation


                           Assets
Professional Corporations
   Specific professions cannot incorporate
     – Doctors, lawyers, CA’s, …
    – Can form professional corporations
   Restricted ownership of shares
     – Professionals involved and immediate
       family members
   Liability is not limited
   Added administrative costs
   Main benefit is tax savings
            Contract Law

   Freedom to enter into agreements
    under your own terms
   Provides a framework for the
    enforcement of agreements.
   First two fundamental parts:
    – 1. Offer
    – 2. Acceptance
                  Offer

   Definition: Request to enter into a
    contract which is meant to be binding
    if accepted.
   Offer made by the Offeror
   Offer made to the Offeree
                   Offer

   Inviting someone to do business is not
    an offer
    – Example: Displaying merchandise in a
      store
    – You are inviting them to make an offer
    – Advertisement usually not an offer
   Offers must be relatively precise
    – Cannot be vague
                  Offer

   Communication
    – Must communicate your intention
    – Offer must come before acceptance
    Cancellation of an Offer

   Rejection of an Offer
    – Offeree says “no”
    – No longer open for acceptance
    – Offeror can re-extend the offer
   Rejection by Counter-Offer
    – Offeree makes a counter-offer
    – Offeree can not then accept original offer
    – Negotiation is not a counter-offer
    Cancellation of an Offer

   Revocation
    – Offeror revokes the offer
    – Must be revoked before acceptance
    – Purchase of an Option prevents revocation
   Lapse of an Offer – Offer expires
    – Specific Time
    – Reasonable Time
    – Offeror dies or becomes mentally incompetent
Standard Form Contracts

   A pre-printed form (ticket, web-page,
    sign, etc.) which contains all of the
    terms of the offer
   Offeror must take reasonable steps to
    bring all terms to the offeree’s
    attention
Standard Form Contracts

   Unusual or Unexpected terms must be
    specifically brought to offeree’s
    attention
    – These are terms not expected by a
      reasonable person
              Acceptance
   Must be some positive action
    – Communicated in any meaningful way
    – Offeror can specify what method must be
      used for acceptance
   Silence cannot be acceptance
    – Unless offeree agrees to this in advance
                    Tenders
   Used when bidders sought for a contract
   Creates a contract to enter into a final
    contract
   Bidders must comply exactly or their bid will
    be rejected
   Owners must treat all bidders fairly
    – Usually means identically
    – Difficult for owners to reject lowest qualified bid
   Lots of lawsuits in this area

				
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posted:11/24/2011
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