Business Law
The term used to refer to all aspects of the legal rights, obligations, and regulation of business. Business law can run the gamut from advising as to how to legally set-up, carry on, and protect and promote the self-interest of a business. It can include assisting with the creation of legal corporations to carry on a business, as well as the creation and review prior to signature of legal documents that affect the rights and interests of your business, such as agreements with your customers or suppliers, commercial landlords, banking and loan documents, assistance with the collection of debts, and the defence of businesses from the claims made of it by others.
Such legal advice can be on the occasion of particular transactions, such as the borrowing of money and the granting of security, or issues relating to the establishment or day-to-day operation of your business.
A business is typically operated either by a person as a proprietorship or by means of a corporation. The practical distinctions are set out below.
Proprietorships
An individual may legally carry on business in New Brunswick using either their own name or a business name. If the name chosen for the business includes a person’s real name, such as “Dave’s Plumbing” or “Johnson Electric”, there is no requirement for registration of such a business name. If a unique business name is chosen, which does not identify the proprietor operating under the name, such as “Acme Electric,” such business name must be registered in New Brunswick under the Partnership and Business Names Registration Act. Failure to do so is a statutory offence punishable by a fine [Section 9 of the Partnership and Business Names Registration Act.] The rationale behind the prohibition is simple: the public have a right to know who they are legally dealing with, which in the case of a proprietorship, is impossible if the business name chosen does not name the proprietor operating under the business name.
A “business” operated by a proprietor is not a distinct legal entity apart from the proprietor, such that even if the business is operated under a business name that is different from the proprietor, the law recognizes that the individual is legally responsible for the actions undertaken as part of the business by the proprietor or any of his or her employees.
Registration of a business name is accomplished by an application to Service New Brunswick for registration of such under the Partnership and Business Names Registration Act. While a lawyer can used to prepare such application on your behalf, the process is reasonably straight forward and can be done on-line by most individuals at Service New Brunswick’s website.
Corporations
In New Brunswick, a person or persons may also choose to create a corporation under the Business Corporations Act to carry on a business. Legally, a corporation is deemed to have the same legal rights and independent status of a person. As a consequence, the legal responsibility of the actions of the corporation in the first instance is visited upon the corporation, although in some cases its directors and officers may have derivative liability for actions or inactions by them on behalf of the corporation. The liability of the shareholder(s) is/are normally limited to the amount of their investment in acquiring ownership of shares in the corporation.
A corporation is created by its owners, referred to as its shareholders, and the corporation is managed and operated by its officers and directors. In the case of a small corporation, the role of the owner(s) (shareholder(s)), and manager(s) (officer(s) and director(s)) may in fact be one and the same person(s). However, in other cases, the officers and directors can be persons different from the owner(s) of the corporation. (Think of many large publicly traded corporations such as General Motors or IBM, who shareholders are separate and distinct from its managers and directors.)
While individuals are permitted to file their own application for incorporation at the Service New Brunswick website, you should be aware that satisfying the registration requirements of Service New Brunswick for the issuance of a certificate of incorporation does not satisfy all of the documentary requirements imposed on a corporation under the Business Corporations Act including the constating of the corporation by creation of a corporate minute book (section 18), creation of by-laws (section 61), creation and issuance of the shares to the subscribing shareholders (section 22), and documenting the major decisions of the corporation at both its initial meeting (section 62) after creation of the corporation, and on an ongoing basis, by written resolutions of the officers, directors, and shareholders. Failure to do so is a statutory offence 9section 175 and 176).
Advantages and Disadvantages of Proprietorships versus Corporations
There are various advantages and disadvantages to incorporation of a company to carry on business. It is best to consult with both your lawyer and accountant to evaluate your individual circumstances and needs.
Starting a New or Buying an Existing Business
As with the decision to carry on business either as a proprietor or as an incorporated, there are also advantages and disadvantages to starting a new or purchasing an existing business. It is best to consult with both your lawyer and accountant to evaluate your individual circumstances and needs.
