BUSINESS ORGANIZATION

Question 1

Sole Proprietorship:

Answer 1

• Unincorporated business owned by a single individual
• Individual is sued in his/her own name
• Income is earned as business income in his/her own name and taxed at the individual level.

Question 2

Partnership

Answer 2

Under the Ontario Partnership Act, a partnership exists if:

Two or more persons are involved.
They carry on business together (engaged in a commercial activity).
With a view to profit (even if no profit is actually made)

3 kinds: General Partnership, Limited Partnership and Limited Liability Partnership.

Question 3

Corporation

Answer 3

A separate legal entity formed by the act of incorporation accordance to a prescribed legal procedure (OBCA/CBCA)

Question 4

Legal nature of Partnership

Answer 4

• Every time a partner dies or a new one is added, then the partnership is dissolved, and a new partnership is created.
• Nonetheless, partnerships can own property distinct from the property of the individual partners. Individual partners just have an interest in the property.

Question 5

Liability of Partnerhip to Creditors

Answer 5

Creditors can first obtain the assets of the partnership, then the individual assets of the partners.

Question 6

Pre-partner liability vs Post-partner liability vs Apparent partner

Answer 6

• Pre-partner liability: A new partner does not become liable for the previous actions of the partnership.
• Post-partner liability: A partner who retires from a firm does not cease to be liable for partnership debts or obligations incurred before the retirement.
• Apparent partner: Similar to ostensible/apparent authority in agency – they will be liable as if they were partners of the firm.
• Applies equally to retired partners whose name still appears on the firm.

Question 7

Tort liability / Breach of Trust - partnership

Answer 7

All the partners are jointly liable for injuries or damages caused by a partner doing the firm’s business.

Question 8

Termination of Partnership

Answer 8

• Termination by Notice or Expiry
• Termination on Death or Insolvency
• Dissolution by Law: mentally incompetence, permanently incapable, guilty of conduct that can negatively affect business, breaches agreement, or just and equitable.

Question 9

Effects of Disolution

Answer 9

Assets are used to pay creditors; remaining distributed proportionally

Question 10

Limited Partnership Act: General vs Limited Partners

Answer 10

• General Partner: unlimited personal liability
• Limited Partners: liability limited to amount invested (like a shareholder), cannot take part in the active management of the partnership.

Question 11

Limited Liability Partnership (LLP)

Answer 11

Individual partners remain liable for their own negligent actions, but the non-negligent partners are not personally liable for losses caused by the negligence of another partner.

Question 12

Corporation differences from partnerships

Answer 12

• Limited liability of shareholders.
• Transfer of Ownership (can sell shares, but often limited)
• Separation of management and control
• No duty of good faith for shareholders
• Continuity
• Taxation

Question 13

Capacity of Corporations (Salomon v. Salomon & Co., 1897)

Answer 13

A corporation can own property, enter contracts, sue or be sued, and carry on business in its own name

Question 14

Constitutional Rights of Corporations

Answer 14

enjoy certain constitutional protections, such as freedom of expression (e.g., advertising rights) and protection against unreasonable searches (under the Charter of Rights and Freedoms in Canada).

Question 15

Limitations on Limited Liability of Corporations

Answer 15

a) Improperly Paid Dividends:
* Directors may be held personally liable if dividends are paid when the corporation is insolvent or would become insolvent as a result.

b) Bankruptcy and Insolvency Act:
* Under insolvency law, directors and officers can be personally liable for unpaid wages, taxes, or breaches of fiduciary duties.

c) Lifting the Corporate Veil:
* Courts can disregard the separate personality of the corporation in cases of fraud, wrongdoing, or misuse of the corporate structure.
o Example: A director uses the corporation as a shield to defraud creditors.

Question 16

Constitution of a Corporation

Answer 16

Articles of Corporation: Name, registered office, classes/# of shares, restrictions on classes/transfer of shares; # of directors; restrictions on business

Name must include “corp”, “inc.”, etc.

By Laws: Board of Directors adopt new or amend old bylaws, shareholders then must approve them by majority vote (although some issues require two-thirds)

Question 17

Equity vs. Debt

Answer 17

Corporations raise money by issuing shares (equity) or borrowing money (debt)
Debt is loan, equity is when you are issuing capital

Question 18

Corporate Capital

Answer 18

Authorized Capital: maximum amount of shares a corporation is allowed under its articles.

Issued Capital: shares issued by corporation

Paid-up Capital: shares that have been issued and fully paid for.

Stated Capital Account: amount received by a corporation for the issue of its shares.

Question 19

Corporate Securities - Shares

Answer 19

a document evidencing an equity interest in the business

Question 20

Common shares vs Preferred shares

Answer 20

Common shares: usually have voting rights attached to them;

Preferred shares: usually entitled to dividends before other classes of shares.

Question 21

Bond

Answer 21

A document evidencing a debt owed by a corporation