Business Organizations Flashcards
How is a sole proprietorship created?
There are no formal requirements. One is started as soon as an individual starts doing business
What are the identifying factors of a sole proprietorship?
Run by a single owner. No separate tax filing is done for the proprietor and the business. Unlimited liability for debts.
What is a partnership?
A relationship between persons carrying on a business in common with a view to profit
What is the major advantage and disadvantage of a partnership?
Advantage: pooling of resources and knowledge
Disadvantage: can lead to stalemates in disagreements among partners
How is a partnership begun?
There are no formal requirements other than a declaration to the province although a contract is often drawn up to provide rules for the partnership. Partnership can be assumed without an agreement if they behave as partners in business
When can a partnership be terminated?
When a partner gives notice to all other partners
If the partnership was started for a single venture, the partnership ends along with that venture
Partnerships are dissolved by the death, bankruptcy, or insolvency of any partner in the absence of an agreement otherwise
If a partner uses their share of property as security for personal debts
When is a partnership dissolved?
Automatic dissolution happens on any event that makes it illegal for the business of the firm to be carried on.
Court can order dissolution if a partner is mentally incompetent, becomes incapable of performing the agreement
Court can also order dissolution if it is found to be just and equitable to do so
What happens when a partnership is dissolved?
Partnership property is used to pay off debts and liabilities. Any surplus is then divided amongst the partners. If there is not enough company property to satisfy creditors, they can come for the assets of individual partners
What is a firm?
A special kind of partnership where partners can join or leave so that the specific partnership dissolves but the business will carry on afterwards
What are the defining qualities of a partnership?
A partnership has no independent existence so there is unlimited liability for the partners.
A partnership can have property distinct from the property of the partners. The partners do not own this property, simply an interest in it
What is the contractual liability of a partnership?
Any acts done by a partner within scope of apparent authority binds the firm and all partners
Each partner is jointly liable for the firm’s debts
A partner is liable only for obligations of a partnership that were incurred while they were a member not before.
Leaving a partnership does not absolve the partner of liability for the obligations incurred before retirement
What is the tort liability of a partnership?
The firm and all partners are liable for injuries or damage caused by any partner doing firm business
Firm is liable for breaches of fiduciary duty and breaches of trust by a partner
What are the implied property terms of the partnership agreement?
All property brought into the partnership stock is to be used exclusively for the partnership
All property bought with money belonging to the firm can only be used for the firm
Some property can remain belonging to individual partners if it is made clear that it is not being brought into the business
What are the implied financial arrangement terms of the partnership agreement?
All partners share equally in profits and contribute equally to losses as long as there is no term saying otherwise
If a partner incurs an expense, the firm must reimburse them
A partner is not entitled to interest on contributed capital before profits are determined
No partner is entitled to remuneration
What are the implied business conduct terms of the partnership agreement?
All partners may take part in management of the business as long as there are not more than 1 class of partner Ordinary matters concerned with the business can be decided by majority vote but any changes to the nature of the business must be unanimous Partnership books must be kept at the place of business and all partners have the right to access them
What are the implied membership terms of the partnership agreement?
No person can be made partner without the consent of all other partners
No partner can assign someone to take over there duties but they may assign their pay to an assignee
What are the fiduciary duties of a partner?
Information regarding firm business must be made available to all partners and the partners must render true accounts of all things affecting the partnership
A partner must be transparent about personal benefits given to them from any transaction relating to the partnership
Partners must not carry on a business competing with the firm and if they do they must pay over all profits made by them in that business
What is a limited partnership?
Allows a partnership to raise capital without borrowing by dividing partners into general partners who take part in managing the business and limited partners who have limited liability to the amount they contributed. If limited partners take part in the business they will be considered general partners and take on unlimited liability
What is a limited liability partnership?
A form of partnership that protects a partner form personal liability by making them not liable for the debt of the partnership or any partner. They still remain liable for their own negligent acts
Can only carry on business practicing an eligible profession
What is a joint venture?
An agreement between two or more parties (usually businesses) to collaborate on a project, contribute resources, and share in profits. They are of a limited duration and a specific purpose
What is an income trust?
Transfers income producing assets to a trust created by an declaration of trust. Income is then distributed to unitholders. The company manages the assets but all income is property of the trust
What is the defining attribute of a corporation?
A corporation is a legal person in the eyes of the law so the owners enjoy limited liability. However, for small businesses owners often have to mortgage personal property for financing
How can an individual within a corporation be found liable as opposed to the corporation itself?
The individual must control the corporation
The control must have been used to commit fraud, a wrong, or breach of duty
The misconduct is the cause of the plaintiff’s injury
How is ownership transfer done in a corporation?
No requirements for public corporations as they can simply sell shares to another investor. For private corporations there are some restrictions. This is more flexible than sole proprietorships and partnerships where the company must end to transfer ownership
