What Happens When a Person Fails to Identify the Existence of a Corporation When Doing a Business Deal?

When a Person Fails to Identify Existence of a Corporation, Corporate Veil Protection Is Lost.
A Helpful Guide to Understanding That Personal Liability May Arise By Failing to Identify Corporation Details Within Business Documents and During Business Dealings

Who Are You?  Sticky Label Many business owners will eventually incorporate the business.  Reasons for doing so include taxation benefits and personal liability protection whereas such personal liability protection arises from the creation of a 'corporate veil' by separating the business owner from the business.  In short, in law, a person can be viewed as being the business (a sole-proprietorship) or as merely just being an owner of the business (a corporation).

From a LAW101 standpoint, a business owner who operates as a sole-proprietor is personally liable for the debts and wrongs arising from the operations of the business regardless of whether the business owner was directly involved; however, a business owner can find protection from a 'corporate veil' by incorporating the business as a separate legal entity and thereby distancing the liabilities of the business from the business owner (unless 'hands-on' in the wrongdoing).

Unfortunately, many business owners fail to properly amend business materials following incorporation.  It is common that business materials such as brochures, websites, business cards, contracts, invoices, and other forms, will lack updating and therefore the incorporation details are omitted from the business materials.  When the existence of a corporation is omitted from documents relating to business dealings, the person failing to provide proper disclosure remains subject to the risk of personal liability without corporate veil protection; Kobes Nurseries Inc. v. Darren Convery and 1553022 Ontario Limited, 2010 ONSC 6499.  This doctrine applies even in circumstances where the Plaintiff knows of the existence of corporate entity yet the person contracted in a personal name; Truster v. Tri-Lux Fine Homes Ltd., 1998 CanLII 3497 (ON CA).

Additionally, a business that fails to properly identify itself may be subject to liabilities or fines arising from Provincial Offences prosecution via various acts such as the Consumer Protection Act, 2002, S.O.  2002, Chapter 30 or Business Corporations Act, R.S.O. 1990, c. B.16, or Business Names Act, R.S.O. 1990, c. B.17, among others.  The failure to properly identify a corporation and confirmation that such conduct violates the Business Corporations Act, was confirmed in the case of MA Fire & Safety Protection v. Satsang, 2018 ONSC 1916 wherein it was stated that:

[30] The findings of fact showed that the Defendant did not know it was dealing with a corporation.  None of the business documents of MA Fire set out the registered business name or the corporation name and this was in violation of the Business Corporations Act, R.S.O.  1990 B.16

Summary Comment

Typically when a person is acting on behalf of a corporation during business dealings such as contract negotiations, the person will be protected from personal liability for the contractual obligations established between the corporation and the other party to the contract negotiations.  However, where the deal is conduct without explicit identification of the corporation, or where a business is improperly identified, the deal will likely be treated as entered into with the person rather than entered into with the unidentified corporation.  This rule of law abides by the common sense that a party to a contract should know who the contract is with; and accordingly, the law says that if a party was unable to appreciate that discussions were being conducted on behalf of a corporation, then the resulting deal will be treated as if entered into personally without corporate law protections.

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