You are the proprietor of a website based in Ontario and one of your patrons is suing you personally for losses sustained due to a proposed promotion on your website. Your website is owned and operated under your name. You are incorporated, but under a different name. Does the fact that you are incorporated protect you from personal liability?
A name today is as important as the bricks, bytes and mortar of a business. Names denote or evoke a certain meaning or cachet associated with a business. Once chosen, depending on the nature of the business, it may become a substantial asset, However, the improper selection or use of a name can attract unnecessary risks and liability to a business. As such, the utmost caution should be exercised in its selection and use.
Under the Ontario Business Names Act, a person operating under his/her own legal name is usually under no obligation to register it as a business name. An individual or partnership carrying on business under a name other than his/her own or that of the partners is required to register the name.
Once a sole proprietorship or partnership is registered, there are no particular legal designations or descriptions. One may indicate “Josephine P. Bloggs, sole proprietorship” or “Percival & Percival, a general partnership”. So what are the financial and legal consequences of non-compliance? Well, as an individual, you can expect a maximum fine of $2,000 and if a corporation, a fine of not more than $25,000. Also, non-compliance deprives the owner(s) of the unincorporated business of the ability to sue.
Corporations must also register. However, in the case of a corporation, mere registration is not sufficient, the Ontario Business Corporations Act requires that the words corporation, corp., incorporated, Inc., limited, ltd., or the French equivalent must always be present in the use of the business name. Why is this designation required?
The designation indicating that a business is incorporated is of paramount importance in terms of liability. In the classic case of Wolfe v. Moir, the individual owner of a corporation rather than the corporation that operated a roller-skating rink was held personally liable for injuries suffered by one of its clients. Why? Principally, because the individual failed to have the proper designation advising the public that it was dealing with a corporation, a legal entity of limited liability. In this case, the roller-skating rink was known by the name of the individual and all advertising was done in the individual’s name.
So, if you want to be shielded from personal liability, it is not enough to incorporate. You must ensure that you describe your corporation as registered when dealing with the public.