S.22 requires that “a partner must act with the utmost fairness and good faith towards the other members of the firm in the business of the firm”(general fiduciary duty of partners) S.31-33 (specific fiduciary duties) (McKnight v. Hutchinson) S.31 – partners bound to render accounts and full info of all things affecting partnership S.32 – partners must account for any benefits derived w/out consent of other partners S.33 – requires partners account for profits mad from engaging in competing business Rochwerg v. Truster Rochwerg became a director of a corporation (which entitled him to shares and stock options) that was the client of his partnership accounting firm Issue: whether the other partners were entitled to an accounting for the shares and stock options? Held: No written partnership agmt so governed by PA no obligation to account under s.30; must account under first branch of s.29(1) – “concerning the partnership” and under the second branch of s.29(2) – benefit derived from use of partnership business connection McKnight v. Hutchinson (example of fiduciary duties of partners) Facts: Law partnership that ended when McKnight learned that Hutchinson had received earnings from part ownership in a private company Held: Relevant sections of PA are ss.22(1), 31, 32(1) and 33 and these obligations can be varied by consent of partners. Funding The funding of a partnership is usually done by a portion of trade credit and typically a loan (bank or other lenders) Partners are the equity investors – could make cash contributions but invest could be in form of property or services (or combo) Typically partners will share profits in proportion to relative contributions, but not necessarily – if nothing is said, the default under s.27(a) is an equal share in capital, profits and losses Possible (although rare) that a partnership interest may be considered a security and if so would be subject to provincial securities legislation If partner does not take part in management of business (dormant partner) Loans from persons other than bank Dissolution A partnership can be dissolved by the act, death, bankruptcy or dissolution of a partner.
misrepresent or mislead persons into believing equity investors will not have LL to avoid premiums PCV allows to compensate persons who are misled and creates an incentive for those transferring bus assets to corp entities to inform persons who previously dealt with them arguably avoided mistake at least cost (Tato Enterprises Ltd. v. Rode) Even if P appears not to have relied or type of business being incorporated, shareholder(s) of company may still be personally liable as it would have been difficult for P to make inquiries since they had failed to register the bus name (not complying with legislatio) (Roydent Dental Products Inc. v. Inter-dent Int’l Dental Supply Co. of Canada) D may be held personally liable where (even when P didn’t rely on LL) the corporate name was not used and by not following statutory requirements, took the risk of being held personally liable (Wolfe v. Moir) Nothing in the statute says that the consequence of not using the cautionary suffix is the disregarding of the corporate entity. If the corporate name had been displayed it is unlikely Wolfe have made a different decision about roller-skating. Non-Consensual Claimants and Incentive Costs Greater willingness to PCV in situation were is a tort claimant, were person had no intention to deal with corporation (non-consensual claimant) (Wolfe but not in Walkovsky) Perfect example of an involuntary claimant would be the victim of a tort committed in the carrying on of the business enterprise Compensation – the corp entity may be disregarded in order to compensate a tort victim (the assets of a corp may not be sufficient to fully compensate the victim) Imposing liability on a deliver bus, for example, for reckless drivers with incentive to deliver quickly injuring claimants, could create an incentive for manager to take this risk into account when devising a method for compensating drivers A Tort action against director or officer directly, is another way of disregarding the corporate entity (shareholders are often directors/officers). It will not just be the corporation that is vicariously liable, the employees/directors/officers will also be directly liable (Berger v. Willowdale A.M.C.) Policy: Could overcome the “deterrence trap” problem and restore the incentive to take sufficient care – however, this could lead to managers over protecting themselves at expense of investors – could be controlled by indemnifying directors/officers through insurance
Trustees have to demand evidence of compliance (s.86-66) Trustees must give the debenture holders notice of a default by the corp (s.90) Trustees must act honestly and in good faith for the interests of debt holders and with the care, skill, and diligence of a reasonably prudent trustee (s.91) SECURITIES REGULATION If you are setting up any business: are you getting money from somewhere other than your own pocket? Yes – then you have a securities law issue (even if you issue shares to yourself) In Canada, securities regulation is a matter of provincial jurisdiction and is typically dealt with in separate securities statutes Most provincial securities acts provide that a prospectus is required when there is a “distribution” of a “security” “security” = not just shares and debentures but also warrants, options, rights and other instruments or transactions that have a similar investment character “Distribution” = includes, among other things, “a trade in a security of an issuer that has not been previously issued Distribution of securities to anyone (including yourself) – exempted if only to yourself Trade = broadly defined to include any sale of disposition of a security for valuable consideration You can be exempted form the Prospectus Requirement if you are a “private issuer” (small business) that has fewer than 50 shareholders and has only distributed securities in reliance on the private issuer exemptions. Provincial securities act disclosure requirements include annual info forms, financial disclosure, proxy circular disclosure, insider trading reports and timely disclosure Takeover Bid Regulation A takeover bid is a bid to acquire sufficient shares of a corp in to control the management (20% or more of the equity securities of any class of the issuer) Where an offeror makes a takeover bid the bid must comply with certain rules: must be made to all holders of the target shares of the class sought; bud must be kept open for a minimum of 35 days; shares tendered by offerees can be withdrawn within bid period; bidder must provide a takeover bid circular. Poison pill plan – involve the issuance of rights to buy further shares of the issuer to existing shareholders – allows existing shareholders to acquire shares below market price Rights only come into effect when a person acquires more than a specified amount (usually 20%)