Business Structures Flashcards
The Sole Proprietor
Oldest, simplest form of business organization, often used by small businesses
An unincorporated business organization that has only one owner
Owner has unrestricted legal responsibility for obligations
Partnership
A business carried on by two or more persons with the objective of making a profit.
3 Rules Governing Partnerships
Partnership legislation (in place in every province)
Contract law
Agency law
JOINT LIABILITY
– Liability is shared by two or more parties (partners), where each is personally liable for the full amount of the obligation
The Partnership Act
A partnership exists when two or more people “carry on business with a view towards profit.”
provides that partners are agents of one another as well as agents of the firm in matters relating to the partnership business.
Partners also owe a fiduciary duty to each other.
Partnetship agreements should address the 6 following issues
Creation of the partnership
Capital contribution
Decision making
Profit distribution
Changes to partnership
Dissolution of partnership
JOINT AND SEVERAL LIABILITY
Individual and collective liability for a debt. Each liable party is individually responsible for the entire debt as well as being collectively liable for the entire debt
Limited Partnership
A partnership in which the liability of some of the partners is limited to their capital contribution
At least one partner has unlimited liability (the general partner(s)) while others have limited liability
Corporation
The corporation is a distinct legal entity in law and capable of assuming its own obligations.
Usually the safest vehicle for conducting business because the owners are normally shielded from personal liability
SHAREHOLDER
Person who has an ownership interest in a corporation
DIRECTOR
Person elected by shareholders to manage a corporation
LIMITED LIABILITY
Responsibility of obligations restricted to the amount of investment
DIVIDEND
Division of profits payable to shareholders
PROFIT SHARING
Profits of the corporation are distributed to shareholders through dividends
DECISION MAKING
The corporation is managed by a board of directors, which in turn is elected by the shareholders
SOURCES OF CAPITAL
A corporation can get its capital in two ways: it can borrow or its directors can issue shares.
TAXATION
– Because it is a separate legal entity, a corporation pays its own taxes
TRANSFERABILITY
The fact that a corporation has a separate legal identity often allows for easy transference of an ownership interest represented by shares.
PERPETUAL EXISTENCE
Because the corporation exists independently of its shareholders, the death or bankruptcy of one or more shareholders does not affect the existence of the corporation
Franchise
An agreement whereby an owner of a trademark or trade name permits another to sell a product or service under that trademark or trade name
DISCLOSURE REQUIRMENTS
Franchisors are required to deliver a disclosure document to prospective franchisees 14 days prior to franchisees entering into binding agreements or paying money
RIGHT OF ASSOCIATION
Franchises have the right to associate with one another and form or join an organization of franchisees
DISTRIBUTORSHIP OR DEALERSHIP
Contractual relationship where one business agrees to sell another’s product
STRATEGIC ALLIANCE
Cooperative arrangement among businesses that may involve joint research, technology sharing, or joint use of productions
JOINT VENTURE
Grouping of two or more businesses to undertake a particular project
SALES AGENCY
Arrangement in which a manufacturer or distributor contracts with an agent to sell goods or services on its behalf
PRODUCT LICENSING
Agreement whereby the owner of a trademark or other property right grants to another the right to manufacture and distribute products associated with the trademark or other proprietary rights
Share Structure
The shares that a corporation is permitted to issue by its constitution
Class of Shares
- vote for the election of directors
- receive dividends declared by the directors
- share in the proceeds on dissolution of the corporation, after the creditors have been paid
Widely held (or public) corporation
A corporation whose shares are normally traded on a stock exchange
Closely held (or private) corporation
A corporation that does not sell its shares to the public
NUANS Report
a document that shows the result of a search for business names
Debt Financing: Bonds and Debentures
Bonds (a debt owed by the corporation; usually a secured debt)
Debentures (a debt owed by the corporation; usually an unsecured debt)
Equity Financing: Securities
Securities. Shares (shareholders are owners) and Bonds (bondholders are creditors) issued by a corporation
