Legal Business Structure Models in Canada

Introduction

The high cost of legal services and the inability of ordinary people to access quality legal representation have impeded access to justice in the Canadian business environment. This issue has been partly catalyzed by the fact that lawyers are increasingly working to promote business goals at the expense of personal interests.¹ This paper explores how access to justice can be improved in the Canadian business environment.

Key sections of this report will demonstrate how law firms in Ontario could change their structures to allow more people to access justice. Therefore, the primary legal framework for undertaking this review is based on Ontario laws. Generally, this document is categorized into four key parts. The first one explains how existing legal forms of business influence access to justice and the second part highlights how alternative forms of business have improved access to justice. The third part of this paper outlines recommendations for improving access to justice, while the last section provides a summary of the key findings.

How Existing Legal Forms of Business Influence Access to Justice

Business structures in Ontario have been designed to deny people access to justice because business owners are protected by limited liability clauses. In other words, it is not possible to hold people accountable for their actions because they are separate legal entities from their firms. The irony is that businesses are subject to prosecution and their owners are not, even though its people and not businesses that make decisions that cause harm to other people. Except for sole proprietorships, which hold business owners accountable for their actions, other forms of enterprises in Ontario protect the real decision-makers (business owners) from accountability.²

For example, the Partnership Act protects owners of businesses that are registered as partnerships from prosecution because of the limited liability clause.³ This protection is often observed in limited liability partnerships (LLP) as opposed to limited partnerships because the LLP model awards business owners with complete protection from risks or losses, while limited partnerships only offer partial protection.⁴ Therefore, aggrieved parties can only sue an organization and not its owners.

Canadian corporations also circumnavigate justice because of the same limited liability clause defined above. In other words, business owners are not liable for business losses.⁵ At the same time, corporations have abundant resources that allow them to get good legal representation, which inhibits the ability of an individual with few legal resources to get a matching level of representation because of the high cost of legal services. The sole proprietorship, as the simplest form of business, is the only model that allows access to justice. In other words, the owner is fully responsible for its losses.

How Alternatives Forms of Business Have Improved Access to Justice

Alternative forms of business, such as social enterprises and cooperatives, have improved access to justice because they are socially owned. Therefore, their managers work towards promoting the “greater good.” This philosophy improves access to justice, albeit for a small group of people, because managers are not primarily motivated to maximize profits, as corporations, sole proprietorships, and partnerships do.

For example, social enterprises are innately designed to use commercial strategies to achieve social goals. Such firms can be either for-profit or non-profit. Based on this understanding, the main advantage of social enterprises is their ability to pursue both social and business objectives, thereby improving access to justice for people who feel that the pursuit of profit infringes on the realization of social objectives.⁶ One disadvantage associated with this type of business is the potential for conflict between different stakeholders. This disadvantage means that the difficulty in balancing shareholder interests may inhibit access to justice.

Cooperatives have also improved access to justice because decision-making is not top-down as it is in partnerships or corporations; instead, company policies are formulated democratically.⁷ Bodies of autonomous association of persons who are striving to achieve a common social or economic goal often create such businesses. Therefore, justice is dispensed within the framework of pursuit for the “greater good,” as is the case with social enterprises. In Canada, cooperatives are formed under the Canada Cooperatives Act. There are about 9,000 such businesses in the country and 750,000 similar entities globally.⁸

The above-mentioned business forms are commonly adopted in many jurisdictions and not just Canada. For example, American and Australian laws recognize corporations, sole proprietorships, cooperatives, social enterprises, and partnerships as legitimate types of businesses. However, based on the changing business dynamics of an increasingly globalized world, access to justice is limited because of the high cost of legal services in many jurisdictions. The following recommendations outline what could be done to alleviate this problem.

Recommendations

Law firms could improve access to justice by leveraging information technology tools to lower the cost of legal representation. Already this proposal is operational in some jurisdictions such as the US and the UK through mobile phone applications, such as the “digital will,” which allows people to write their will using an application that allows them to input legally binding information in the same manner as an accountant inputs data in a spreadsheet.⁹

The same technology has been used to settle legal disputes, such as divorce, through an application known as the “divorce app,” which has increasingly replaced the role of solicitors in making marriage settlements.¹⁰ These examples show that technology could not only be used to improve access to justice but also to reduce the cost of accessing legal representation. There is potential in using the same technology in the corporate space.

Most of the proposals for accessing justice outlined above should be channeled through existing platforms for accessing legal services, such as those provided by provincial governments in Canada. For example, in Ontario, such proposals should be channeled through Legal Aid Ontario, which offers legal services to people who are unable to find representation. Residents of British Columbia also receive the same services through the Legal Services Society.¹¹ Comparatively, access to justice in Quebec can be gained through the Commission des Services Juridiques.¹²

Encouraging the use of technology to improve access to justice should not only increase access to legal services but also improve on quality. This goal can only be achieved if updated legal knowledge is combined with good client care. At the same time, it is also important to monitor the works of legal officers to make sure they provide high-quality services. Here, regulators should make sure they are not only reactive when investigating cases of poor quality services but also proactive in testing for the same to ensure people do not get poor services.

Conclusion

This paper has shown that traditional business models in Canada are partnerships, sole proprietorships, and corporations. Alternative business models are cooperatives and social enterprises. Although the alternative forms of business have improved access to justice (because of minimized profitability goals), they have failed to address the high cost of accessing legal services. This problem necessitates the use of information technology tools to make legal services more accessible to all persons who need them. Nonetheless, stakeholders should still have more conversations about how to improve access to justice because current legal frameworks do not address the needs of all stakeholders.

Reference List

CBA., Legal Aid, Ottawa, CA, Canadian Bar Association.

Furlong, J., How Access-to-Justice Efforts Are Changing the Law, New York, NY, Lawyerist. Web.

Measuring the Co-operative Research Network., Cooperatives in Canada, Ottawa, CA, Cooperative Difference. Web.

Queen’s Printer for Ontario., Business Corporations Act, Victoria, BC, British Columbia Laws.

Queen’s Printer for Ontario., Business Names Act, Newmarket, ON, Ontario.

Queen’s Printer for Ontario., Partnerships Act, Newmarket, ON, Ontario.

SEC., What is a Social Enterprise, Newmarket, ON, Social Enterprise for Canada.

Ward, S., Partnership in Canada, Broadway, NY, The Balance Small Business.

Footnotes

1. J. Furlong, How Access-to-Justice Efforts Are Changing the Law, New York, NY, Lawyerist. Web.
2. Queen’s Printer for Ontario, Business Names Act, Newmarket, ON, Ontario. Web.
3. Queen’s Printer for Ontario, Partnerships Act, Newmarket, ON, Ontario. Web.
4. S. Ward, Partnership in Canada, Broadway, NY, The Balance Small Business. Web.
5. Queen’s Printer for Ontario, Business Corporations Act, Victoria, BC, British Columbia Laws. Web.
6. SEC, What is a Social Enterprise, Newmarket, ON, Social Enterprise for Canada. Web.
7. Measuring the Co-operative Research Network, Cooperatives in Canada, Ottawa, CA, Cooperative Difference. Web.
8. Measuring the Co-operative Research Network, Cooperatives in Canada, Ottawa, CA, Cooperative Difference. Web.
9. J. Furlong, How Access-to-Justice Efforts Are Changing the Law, New York, NY, Lawyerist. Web.
10. J. Furlong, How Access-to-Justice Efforts Are Changing the Law, New York, NY, Lawyerist. Web.
11. CBA, Legal Aid, Ottawa, CA, Canadian Bar Association. Web.
12. CBA, Legal Aid, Ottawa, CA, Canadian Bar Association. Web.