Business Organizations

Question 1

How is a sole proprietorship created?

Answer 1

There are no formal requirements. One is started as soon as an individual starts doing business

Question 2

What are the identifying factors of a sole proprietorship?

Answer 2

Run by a single owner. No separate tax filing is done for the proprietor and the business. Unlimited liability for debts.

Question 3

What is a partnership?

Answer 3

A relationship between persons carrying on a business in common with a view to profit

Question 4

What is the major advantage and disadvantage of a partnership?

Answer 4

Advantage: pooling of resources and knowledge
Disadvantage: can lead to stalemates in disagreements among partners

Question 5

How is a partnership begun?

Answer 5

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

Question 6

When can a partnership be terminated?

Answer 6

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

Question 7

When is a partnership dissolved?

Answer 7

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

Question 8

What happens when a partnership is dissolved?

Answer 8

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

Question 9

What is a firm?

Answer 9

A special kind of partnership where partners can join or leave so that the specific partnership dissolves but the business will carry on afterwards

Question 10

What are the defining qualities of a partnership?

Answer 10

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

Question 11

What is the contractual liability of a partnership?

Answer 11

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

Question 12

What is the tort liability of a partnership?

Answer 12

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

Question 13

What are the implied property terms of the partnership agreement?

Answer 13

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

Question 14

What are the implied financial arrangement terms of the partnership agreement?

Answer 14

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

Question 15

What are the implied business conduct terms of the partnership agreement?

Answer 15

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

Question 16

What are the implied membership terms of the partnership agreement?

Answer 16

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

Question 17

What are the fiduciary duties of a partner?

Answer 17

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

Question 18

What is a limited partnership?

Answer 18

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

Question 19

What is a limited liability partnership?

Answer 19

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

Question 20

What is a joint venture?

Answer 20

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

Question 21

What is an income trust?

Answer 21

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

Question 22

What is the defining attribute of a corporation?

Answer 22

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

Question 23

How can an individual within a corporation be found liable as opposed to the corporation itself?

Answer 23

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

Question 24

How is ownership transfer done in a corporation?

Answer 24

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

Question 25

How is management of a corporation done?

Answer 25

Shareholders elect a board of directors who make decisions on behalf of the company based on majority vote since the shareholders themselves have no agency authority. Major management decisions can be referred back to the shareholders where they require a special majority

Question 26

Does a shareholder owe a duty of good faith to the corporation?

Answer 26

No, a shareholder only has to look out for themselves. They can carry on another business and enter into contracts with the firm on their own behalf without having a conflict

Question 27

How is a business incorporated?

Answer 27

Earlier forms: royal charter, special acts of parliament
Now: Formed by general incorporation statutes allowing any person to form a corporation if they follow the statute
A business can be incorporated federally or provincially but the federal usually is suited for large nation-wide businesses

Question 28

What is a corporation constitution?

Answer 28

A document that sets out essential information about the corporation like its name, information about shares and share transfer, info on directors, restrictions on business. The constitution can only be altered by a two-thirds majority vote and filing the amended constitution to the proper authority

Question 29

What are corporation bylaws?

Answer 29

Detailed operating rules for the dat-to-day affairs of the corporation. They require a simple majority vote and are first adopted by the directors which are then voted on by the shareholders and can be kept or defeated

Question 30

What is a private corporation?

Answer 30

A corporation which is not permitted to offer shares to the public and transfer of shares is restricted. Disclosure and transparency obligations are relatively light for these corporations.

Question 31

What is a professional corporation and how are they liable?

Answer 31

Members of a listed profession create a corporation and all members must be members of that profession. Members are personally responsible for negligence or misconduct but are protected for claims from creditors

Question 32

How can you become a shareholder?

Answer 32

Being one of the original applicants for incorporation, buying shares from the corporation, or buying shares on the secondary market

Question 33

How is the amount of share capital for a corporation decided?

Answer 33

It is set out in the constitution the amount of share capital and the upper limit of shares it can issue. Authorized shares that are issued become issued capital. Shares that are fully paid for are paid-up capital