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January 8, 2014

Legal name game can get contractors in trouble

An increase in the number of companies not using their correct corporate name on business documents is leaving owners liable for personal litigation, says a Vancouver construction lawyer.

“I see this all the time,” said Kieran Bridge, a corporate lawyer with the Construction Law Group in Vancouver.

“I have seen an increase in the problem over the past decade.”

Bridge, a commercial litigator and trademark agent, attributes the rise in companies not using their legal name on documents to two reasons.

“There are a lot more small businesses or home-based businesses today and, secondly, there is the concept of branding. Companies are going through a branding exercise rather than creating a company in the legal sense,” he said.

Bridge was commenting on a case in Saskatchewan last year involving a company that had a limited liability status, but failed to put “Ltd.” or “Limited” on its documents after the company name.

In Vallis v. Prairie Alternative Energy Solutions Ltd. 2013 SKPC 124 a judgement of $4,176 was upheld against Peter Karras.

He maintained that he was an employee and shareholder of Prairie Alternative Energy Solutions and clients Ken Vallis and Helga Halfinger transacted with the company.

The provincial court judge disagreed stating that “Mr. Karras failed to comply with the provisions of The Business Corporations Act insofar as proper identification of the corporation under which he was carrying on business.”

“This failure was not dishonestly done. Nonetheless, the law is very clear in this regard and the facts having been clear that he failed to accurately represent the corporate status of his business; he is personally liable to the plaintiffs,” the judge said.

Business Corporations Acts, which are provincial legislation, vary from province to province.

Rachelle Mezzarobba, a Vancouver lawyer with Clark Wilson’s private company transactions group, stated in a legal post that whether it is Saskatchewan or B.C. “both acts require a company to use its full corporate name on all contracts, invoices, orders for goods and negotiable instruments. B.C. further requires full corporate names to be on all business letters and receipts.”

Bridge said that the rationale remains the same.

The complete corporate name of the company should appear on company business documents to ensure that individuals or other corporations doing business are informed of each party’s status, albeit a proprietorship, a limited liability company, or incorporated company.

“The person dealing with you is entitled to know what the status is of your company,” he said, as it may impact the nature of the transaction.

“It is okay to have a business name,” he said, which may be a catchy name such as “Joe’s Plumbing” or to be part of a branding movement.

But, while the brand may be on the letterhead or documents, there needs to be clarity on the same document outlining what the corporate entity is.

“Maybe it is at the bottom of the letterhead, where you have Vancouver Plumbing Ltd. doing business as Joe’s Plumbing.” he said.

Also, the brand name can’t be arbitrary, but also has to be legally registered.

Bill Veenstra, associate counsel with Jenkins Marzben Logan LLP said B.C. courts have dealt with the issue recently.

In Hamilton v. Lepin 2005 BCSC 1824, the case involved an owner of two paintings, who launched an action against the gallery owners after not being paid.

The consignee document did not carry the corporate name.

Veenstra said one of the misconceptions is that simply incorporating a company protects the company owners from liability.

That premise is only valid if communicated clearly to clients, who are aware that all the business is conducted through that incorporated entity.

“It should be made clear to people dealing with the company,” he said.

He advises placing the corporate name on all documents ranging from business cards through to office documents, such as invoices.

Nearly every province has dealt with the issue over the past 30 years.

Judges, though, have stood firm, even at the appeal court level as individuals dealing with a company have the right to know its legal status.

The Saskatchewan case of Excelco Foods Inc. v. Snider (1991) 95 Sask. R. p. 314 (Sask. Q.B) is often cited in court.

It also underscores the need to ensure that contracted individuals hired for a project know they are dealing with a company and not the person doing the hiring.

As 2014 begins and new office documents are printed up, both Veenstra and Bridge believe it is a good idea to check company documents and, if any doubt exists, contact a company lawyer.

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