Is This a Sole Proprietorship, Partnership, Lp, Llp Or Corporation?

IS THIS A SOLE PROPRIETORSHIP, PARTNERSHIP, LP, LLP OR CORPORATION?

Sole Proprietorships

Sole Proprietorships: person engaged in business of trading, manufacturing or mining and uses something other than own name for business name (PA 1, 88)

• 1 owner who has both the prerogative and responsibility of making all ultimate decisions concerning the business
• PA 88(1):if doing business in a name other than their own + “and Company” (or some other word/phrase indicating plurality of members) a SP must file with the registrar within 3 months of the time biz used name
• Attractions: Ease to commence and dissolve, modest expense to start up
• Disadvantages: the unincorporated owner is fully liable (100% personal liability) for all debts and other obligations incurred by the business
• Name must not be the same/similar to another BC biz – the registrar has discretion to refuse a name (PA 89(1))

Partnerships

Partnerships: relationship between persons 1) carrying on business 2) in common 3) with a view to profit ((PA 2)

• Persons includes a corp, carrying on business likely involves ongoing activity – co-ownership leading to profits alone is not sufficient (Kamex), and view to profit doesn’t mean profits actually need to be generated
• Kamex: In addition to joint ownership, necessary to find w/in that agreement an intention on the part of the parties thereto to carry on a business in common w/a view of profit
• the mere fact that co-owners intend to acquire hold, and sell a building for profit does not make them partners
• in this case, clearly intended to maintain their rights asco-owners (i.e. keep separate their respective beneficial interests)
• Rooted in CL– codified by PA+PA 91 states rules of equity and CL still apply, unless they are inconsistent w/ the PA.
• PA 3:who is not in a partnership, as well as describing the principles for interpreting PA 4
• PA 4:partner is an agent of the firm and other partners for the purpose of business of partnership
• To avoid a partnership, it is best to avoid any remuneration based on the net profit of the enterprise. One of the ways to avoid the partnership rules from applying to you is by using a corporation or PA 3
• Advantages: ease of formation and dissolution, great flexibility in designing the internal managerial structure

WHAT IS THE LIABILITY? (DISAVANTAGE)

• UNLIMITEDLIABILITY OF EACH PARTNER, jointly, or jointly and severally (default position
• (PA 7(1), (2) UNLESS a) and b)):(a) the partner so acting has in fact no authority to act for the firm in the particular matter, and (b) the person w/whom he or she is dealing either knows that the partner has no authority, or does not know or believe him or her to be a partner.
• Partner could limit liability by becoming a LP, but then they can’t play any part in the direction of the business
• Representing, or allowing yourself to be represented, as a partner could hold you liable as a partner even if you’re not one: PA 16
• A partner is jointly liable for firm debts when they’re alive, and severally liable when they’re dead (GPs only): PA 11
• The firm is liable for injuries/losses to a person who isn’t a partner or any penalties incurred because of a wrongful act or omission by a partner: PA 12
• PA 19 outlines the liability of a new, retired or retiring partner

Is There a Partnership? PA 4

• Rely on the whole character if the transaction to determine partnership or not (Pooley)
• Generally formed by K, but could “accidentally” create a partnership – be careful when profit sharing!
• a) owning property in common doesn’t, by itself, create a partnership, even if profits are shared
• b) sharing gross returns doesn’t, by itself, create partnership (ex: consignment)
• c) rebuttable presumption that sharing profits is proof of a partnership
• THEN LISTS EXCEPTIONS i), ii), iii), and [iv) (Pooley)]
• The court focused on: the creditor could require the business to use contributions for certain purposes; the creditor could get paid at the end of the day with the assets of a partnership; the creditor could require the partnership to take certain legal action; the partnership could not deal without the consent of the creditor; the creditor had unlimited access to the books/records; the bankruptcy of the creditor ended the agreement; there was also an arbitration clause.
• Though none of those in particular would have tipped the balance, the overall relationship is indicative of a partnership arrangement, rather than a true creditor.

What is the Legal Personality of a Partnership?

• PA 81 states that certain businesses (trading, manufacturing, or mining) must register as partnerships unless they are LLPs, andPA 82 grants 3 mos to do so. Applies whether or not individuals are aware they are in a partnership.
• If firm has a name, then have to register
• When in doubt, register
• No separate legal personality from the partners themselves:Thorne (a partner can’t be employed by the partnership)
• A partnership is a legal entity or persona juridica separate and distinct from the indvl composing it
• Collective term for people in a partnership is a “firm” (PA 1), but the name “firm” is a matter of convenience and has no substantive legal consequence (i.e. no separate personality):Thorne

Partnership Property

• According to PA 1.1, partnership property is defined as all property and rights and interests in property that was:
• originally brought into the partnership stock,
• acquired, whether by purchase or otherwise, on account of the firm, or
• acquired for the purposes and in the course of the partnership business.
• All partnership property is held/used exclusively for the partnership and in accordance with the agreement: PA 23(1), but often varied by the partnership agreement
• Property bought with firm money is deemed to be bought on account of the firm, absent contrary intention: PA 24

What is the Relationship between Partners?

Rights and duties of partners are outlined in PA 27

• Sets out the partnership they are deemed to have
• These can be changed- but are what you have by default
• so partnership = cannot be forced out or be required to stay in but there are certain situations where the partnership is dissolved without the consent of a particular individual

Based on four principles:

• Equality:
• Partners’ rights and obligations to share equally in profits and losses (PA 27(a))
• Right to participate in the management of the business (PA 27(e)), to have access to the partnership books (PA 27(i)
• Duty to render to each other true accounts and full info of all things affecting the partnership (PA 31).
• Consensualism:
• Rights and duties of partners can be expressly or impliedly varied with unanimous consent (PA 21)
• Admission of new partners must be unanimous (PA 27(g)]
• Changes to the fundamental character of the partnership agreement must be agreed upon unanimously – ordinary matters can be decided by majority (PA 27(h)]
• Subject to the existence of an agreed upon set term, a partner can end the partnership whenever by giving notice (PA 29(1)]
• Unless the power to do so is expressly in the partnership agreement, no majority of partners can expel a partner (PA 28) can change this
• Utmost good faith (fiduciary character): partners have the duty to act w/ utmost fairness and good faith to other partners in the business of the firm (PA 22(1)]
• fiduciary dutyto each partner withrespect to partnership business
• partnership exists in respect to the carrying on of a specific business
• so this should be set out fairly comprehensively – although keep in mind just writing down what the business entails may not include everything
• certain things that you must do, certain things that you ought not to do
• MUST act in best interest of partners
• any information must be given to other partners
• any property has to be given to other partners
• any profits must be given to other partners (and then u get your share)
• part of this duty of good faith/best interest is that you have to stay on top of the business of the entity
• can breach the duty if you are not as involved as you should be

• you can’t K out of the FD – but you can structure it – how and when info has to be revealed. But the basics – informing and benefits cant be contracted out of
• Personal character of the partnership K: many of the provisions can be K’d out of in a partnership agreement

Dissolution of a Partnership:

• Subject to the existence of an agreed upon set term (i.e. undefined term), a partner can end the partnership whenever by giving notice (PA 29(1), 35(1)(c)]
• Subject to an agreement, a partnership is dissolved if there is an existing set term that expires (PA 35(1)(a)) or if the adventure/undertaking for which the partnership was entered into ends (PA 35(1)(b)]
• Death, bankruptcy or dissolution of partner A: partnership dissolved if 2 partners (PA 36(1)(a))) or dissolved btwn partner A and the rest, subject to partnership agreement (PA 36(1)(b)]
• Partnership is dissolved if there’s an event making business unlawful to be carried on: (PA 37]
• PA 38 outlines when a court can decree dissolution
• On dissolution, partners are entitled to apply partnership property to debts/liabilities of firm and then will have surplus assets divided amongst them: PA 42(1)(a)&(b)]

What is the Relationship of Partners to Third Parties?

• A new partner to an existing firm doesn’t become liable for any debts/liabilities incurred before they became partner: PA 19(1)
• Retirement doesn’t exonerate a partner from debts incurred by the firm before retirement: PA 19(2)
• A partner is jointly liable for all debts and obligations of the firm: PA 7, 11, 12, 14
• A person can be held liable as a partner to the extent that a partner would be, even if they never were one, if they hold themselves out, or allow themselves to be held out, as a partner: PA 16

Joint and Several LIABILITY

Example: Assume P has a claim against A-B-C “entity,” and assume:A 75% responsible for claim; B 25%; C 0%.

Joint Liability: A & B & C each 100% liable to P (though P can only claim once) - A, B, C have no claim against each other (thus, for example, C could end up paying 100%). This is a very precarious position for A, B and C when they have significant assets, especially since partnership assets are not prioritized over personal ones; Can’t K out of JL to the ROW

Several (or Proportionate) Liability: P can claim 75% from A and 25% from B (thus, C has no liability to P). This is the idea behind a limited liability partnership.

Joint and Several Liability: W/respect to parties outside the partnership, liability is joint. W/in the partnership itself, liability is several Kually. So if A & B & C each 100% liable to P (though P can only claim once) - A, B, C among themselves entitled to sort out the claim so A is 75% responsible, B 25% and C 0% (so P could claim 100% from C but C can recover 75% from A and 25% from B).

TYPES OF PARTNERSHIPS

General Partnership – one governed by BC law that isn’t an LP or LLP: PA 1

All partners have presumptive = access to info and decision-making. Any liability that one of you has is the liability that all of you have to the ROW. You don't need to find the right partner to deal w/, b/c they are all able to make decisions that are binding on the partnership w/ respect to the rest of the world.

• Internally, you can agree as partners as to how to change the basic “equality.” this internal agreement will have no change on your interactions with the ROW (can K out of some of the benefits, but you can’t K out of any of the liabilities)
• The recognition of the partnership entity is a legal mechanism for protecting others, rather than those w/in the partnership (opposite of a corp)
• Unlimited personal liability

Limited Liability Partnership

• Preconditions: a) there must be a written agreement btwn 2 or more persons designating their partnership as an LLP; b) the partnership is formed to carry on a profession governed by an act that permits practice of the profession by an LLP, and the governing body of which profession requires its members to maintain a minimum amount of liability insurance; c) the LLP's name is registered ; d) the LLP's name must include the words "limited liability partnership" or the abbreviation LLP as the last words or letters of the firm names
• A partner in an LLP isn’t liable for other partners’ shit just b/c they’re a partner ((1)(a)) or for an obligation btwn the partnership and another person (debts) ((1)(b)) and isn’t liable to the partnership or partner for either scenario ((1)(c)), they are only liable for their own negligence or the negligence of someone under their direct supervision/control ((2)(a)) or if they knew of the other partner’s shit and didn’t take reasonable actions to prevent it ((2)(b)(i)&(ii)): PA 104
• Can’t accidentally have an LLP – registration is required: PA 96
• If the General Partnership ends, the LLP ceases as well
• still have a claim to partnership property which is presumed to be =, but the external indvls who are bringing claims against you can claim only against the partnership property
• the outside person has no access to the personal property of the partners
• only way personal property can be exposed if there is a claim against me and it is my negligence that caused the problem
• LLP has the advantage of sheltering
• Professional LLPs must be expressly authorized under their governing statute and meet any pre-requisites: PA 97
• A change in partnership doesn’t affect the LLP status: PA 102
• Partners are subject to the same obligations as corp directors w/regards to personal liability for payments (ex: unpaid wages, unremitted taxes, torts (inducing breach of K), partners personally liable for a partnership obligation (ie K obligation) if they would be liable for the obligation if the obligation were an obligation of a corp and they were directors of that corp PA 105(1)
• Doesn’t create a FD or DoC; partner ought to know what is going on, cannot escape liabilityby being unaware: PA 105(2)
• IF A CORPORATION IS A PARTNER IN AN LLP: directors are jointly and severally liable for any obligations imposed on the corpo under (1) or PA 104(2): PA 105(3) unless the director dissented (see appraisal remedy) or took reasonable actions to prevent the act/omission that resulted in the liability: PA 105(4)
• Can’t use an LLP to get out of a) previous obligations of the partnership before it became an LLP or b) Ks entered into before it was an LLP: PA 106

Limited Partnership

• At least one general partner and one limited partner: PA 50(2)
• 1 person can be both (rights/powers/restrictions of a general, but has LP rights against the other partners), but you need at least 2 actual people: PA 52
• Can’t accidentally form an LP – formed by filing a declaration: PA 51(1)LPs don’t have a separate legal personality
• A general partner has all the rights and powers of a regular partner (PA 56]
• A limited partner can contribute $ and property, but not services since they can’t contribute by being part of the running of the business (PA 55(1))) and their interest is limited to person property (PA 55(2)]
• A limited partner is only liable to the extent they agree to or contribute to the capital of the LP: PA 57
• Limited partners share capital and profits in proportion to their contributions, and everything else equally: PA 61(1), unless provided otherwise in the partnership agreement: PA 61(2)
• Limited partners don’t get property until all liabilities of the LP are paid – the limited partners have preferential access to profits and being paid out if the partnership ends: PA 62
• Limited partners will be held liable as general partners if they’re the directing minds and represent themselves to be management; If a LP takes part in the control of a business, he becomes liable under the statute as a GP (i.e. unlimited liability to the extent of his assets):Haughton Graphics – participate in management of business: PA 64
• Weren’t liable in Nordile Holdings b/c they didn’t hold themselves out to be management – acted in their capacity as directors and officers of the general partner

• can receive the return of his contribution: 1) on dissolution 2) if the partnership agreement provides for it 3) if not other procedure is specified in the partnership agreement, then after he or she has given 6mos notice to all other partners; 4) if all the partners consent to the return
• you can for internal purposes be limited, but for external being general: meaning that you can have the perks of a LP (preferential access to profits and assets upon distribution) but allowed to be involved in management and exposed to the outside world (external purposes same as GP)
• closest to corporation in the way that they define what they can do

COMPARISON OF BUSINESS ENTITIES

Corporations  creature of statute – can’t accidentally create one