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GMGT 3300 > Business Organizations > Flashcards

Business Organizations Flashcards

1
Q

What is a partnership (definition)?

A

persons carrying on a business in common with a goal of profit

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2
Q

Do partners need to be doing relatively the same thing/jobs to be considered a partnership?

A

No! As long as they are working towards the same thing

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3
Q

What are the 2 ways a partnership can be formed?

A
  1. express agreement
  2. implied agreement
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4
Q

Explain an express agreement.

A

An expression to each other (but does not have to be in writing) what they are doing and what all the partners want. There should be no surprises since everything is talked about.

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5
Q

Explain implied agreement.

A

Others feels they are a partnership based on the way they behave and can approach a judge to ask the judge to make a declaration of partnership. Substance of the relationship matters NOT what the “partners” say.

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6
Q

How can a judge decide if there is implied agreement?

A

When looking at it in a circumstance, judges look at all the facts and if they are acting as a partnership, the judge can determine implied partnership. Usually people do not want an implied partnership ruling. The judge can also look at the facts of a partnership and decide they are not actually partners.

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7
Q

Are sources of law of partnership municipal, provincial or national?

A

Provincial.

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8
Q

What are the sources of law of partnership?

A
  1. partnership act
  2. judge made law
  3. partnership agreement
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9
Q

Explain the partnership act

A

Excellent example of where a statute is used to codify law.
A set of rules that work like a partnership agreement in the event a partnership agreement is not made. A set of “default” rules.

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10
Q

Explain judge made law in the context of a partnership.

A

if judges create law in a partnership they are allowed to do it as long as it doesn’t conflict with the partnership act.
Courts can make law faster than legislature.

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11
Q

Explain a partnership agreement.

A

A contract between every single partner in the partnership. Not something that exists in every partnership. Sets out rights and duties of partners as between each other in the partnership. Overrules the partnership act. Outlines how things will be addressed before they arise (for example disagreements).

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12
Q

What are the 6 liabilities of a partner?

A
  1. unlimited liability
  2. joint and several liability
  3. every partner is an agent of the firm and all the partners for business if the kind carried on by the firm.
  4. retiring partners are still liable for obligations incurred while under the partnership
  5. newly admitted partners are not liable for obligations existing prior to their joining
  6. retiring partners can still be liable for things done after their departure via estoppel
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13
Q

Explain unlimited liability in the context of a partnership.

A

every single one of the partners has unlimited liability.
Each partner can be personally sued and personally liable of debts of the firm.

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14
Q

Explain joint and several liability in the context of a partnership.

A
  • makes it worse than sole proprietorship.
  • every partner is liable for the entire amount and then it is the partner’s responsibility to go collect from other partners.
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15
Q

What should you do if you are retiring from a partnership?

A
  1. ask partners ti indemnify you when you leave the partnership
  2. indemnity agreement
  3. arrange a novation
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16
Q

What is an indemnity agreement?

A

an agreement promising that if the come after you in a lawsuit, the partners will take care of it.

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17
Q

What is a novation in a partnership?

A
  • it is not a promised thing but good to have
  • someone is willing to come on as a partner as you are leaving. If that new partner is willing to take on the liability, they can substitute themselves for you.
  • the partner leaving, the new partner entering, the rest of the partners, and the bank must all agree
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18
Q

Explain the 6th liability of partnerships.

A
  • you allowed the people who deal with the firm to believe you were still there (no notice, etc.)
  • you get no benefits of a partner, you just become liable like one.
  • this is easily avoidable (sending notices, changing letterhead, notice to company office after you are gone, ad in gazette, etc.)
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19
Q

Which partnership liability is NOT a disadvantage?

A
  1. newly admitted partners are not liable for obligations existing prior to their joining.

Just common sense

20
Q

What are the advantages of a partnership?

A
  1. multiple people to carry out common goals together with a set of rules governing their relationship
  2. allows owners to pool knowledge, skills, and financial and physical resources
21
Q

Does registration create a partnership?

A

NO

22
Q

What is a limited partnership?

A
  • 1 or more general partners
  • 1 or more limited partners
  • must be at least one type of each partner
  • general partners are the ones running the business and have unlimited liability
  • limited partners (think of investors) have no say in the business but have limited liability (can’t lose more than their ownership interest)
  • limited partners are paid first
23
Q

What are the limitations of the separate corporate existence?

A
  • piercing the corporate veil
    (think if salomon case)
24
Q

Explain piercing the corporate veil.

A

a barrier that protects the people behind the corporation.
when suing the corporation you cannot pierce the corporate veil and sue the owners

25
Q

When can a corporate veil be pierced?

A

if the corporation is used to perpetrate, cause, or shield fraud the courts will allow you to pierce the corporate veil.

26
Q

What are the methods of incorporation?

A
  1. creation via “special act”
  2. creation by general act (i.e. corporation act - federal or provincial)
27
Q

Explain creation via “special act”

A
  • normal people can NOT use this method
  • this method performed by legislatures
  • a statute that creates a corporation (i.e., canada post)
28
Q

What do we call a corporation created through the special case?

A

Crown corporation

29
Q

Explain creation by general acts

A
  • a legislature creates a statute called the corporation act
30
Q

What is the corporation act?

A
  • sets out laws regarding corporation and laws on how to create them
  • every province and federal does it but not always called the corporation act
31
Q

What are the 3 main minds of general acts?

A
  1. memorandum type
  2. letters patent type
  3. articles of incorporation type
32
Q

Explain the memorandum type.

A
  • only used by nova scotia
  • when a form is submitted it will be called a memorandum of association
  • sets out object of association
33
Q

Explain letters patent type.

A
  • only used in PEI and Quebec.
  • similar to memorandum. Submit a form in this type and it will be called letters patent type
  • must set out object of association
34
Q

Explain articles of incorporation type.

A
  • every province uses this type
  • when we fill out the document of incorporation we don’t have to set out the objects of the association/corporation
35
Q

What are the 3 constitutions of a corporation (fundamental domuments)?

A
  1. articles of incorporation
  2. by-laws
  3. unanimous shareholders agreement
36
Q

Explain what is set out in the articles of incorporation.

A
  • name of corporation
  • address of registered office
  • first director or directors
  • min and max of directors
  • amount of shares and type of shares
  • restrictions on the type of business
37
Q

What is the point of registering the articles of incorporation?

A

proof that the corporation is “alive”

38
Q

Explain by-laws in the context of the constitution of a corporation.

A
  • operating rules of a corporation for its day to day affairs
  • includes clauses, but most people skip over that
39
Q

Explain a unanimous shareholder agreement.

A
  • not mandatory
  • a contract between all the shareholders and the corporation itself
  • you get the advantages of a partnership as well as the benefits of a corporation
40
Q

What are the potential advantages of incorporation?

A
  1. limited liability
  2. ease of transfer of ownership
  3. continuous existence
  4. loyalty issue
  5. separation of ownership and management
  6. if more than one owner, the advantages of partnership
41
Q

What are the potential disadvantages of incorporation?

A
  1. more costly to set up than a sole proprietorship or partnership
  2. takes longer than sole proprietorship or partnership to set up
  3. accounting side
42
Q

Which potential disadvantage has the biggest influence about whether or not you should incorporate?

A

Accounting side! Impact on income tax is the biggest reason not to incorporate.

43
Q

Who are duties of directors owed to?

A
  • the corporation itself
  • not to shareholders who own it
44
Q

What duties must be performed by duties of directors?

A
  1. duty of care, skill, and diligence
  2. duty to disclose an “interest” in contracts with the corporation
  3. duty to refrain from abuse of corporate opportunity
45
Q

Explain the duty of care, skill, and diligence.

A
  • as a director, attend meeting, ask questions, participate in the action of the board
46
Q

What are fiduciary duties?

A
  1. duty to act in the best interest of the corporation in this case
  2. duty to disclose an “interest” in contracts with the corporation
    - duty to refrain from abuse of corporate opportunity
47
Q

Explain the duty to refrain from abuse of corporate opportunity.

A
  • fiduciary duty
  • works in the best interest of the corporation, not yourself
  • about conflict of interest

GMGT 3300 (11 decks)

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