Business Structures

Question 1

The Sole Proprietor

Answer 1

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

Question 2

Partnership

Answer 2

A business carried on by two or more persons with the objective of making a profit.

Question 3

3 Rules Governing Partnerships

Answer 3

Partnership legislation (in place in every province)

Contract law

Agency law

Question 4

JOINT LIABILITY

Answer 4

– Liability is shared by two or more parties (partners), where each is personally liable for the full amount of the obligation

Question 5

The Partnership Act

Answer 5

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.

Question 6

Partnetship agreements should address the 6 following issues

Answer 6

Creation of the partnership

Capital contribution

Decision making

Profit distribution

Changes to partnership

Dissolution of partnership

Question 7

JOINT AND SEVERAL LIABILITY

Answer 7

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

Question 8

Limited Partnership

Answer 8

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

Question 9

Corporation

Answer 9

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

Question 10

SHAREHOLDER

Answer 10

Person who has an ownership interest in a corporation

Question 11

DIRECTOR

Answer 11

Person elected by shareholders to manage a corporation

Question 12

LIMITED LIABILITY

Answer 12

Responsibility of obligations restricted to the amount of investment

Question 13

DIVIDEND

Answer 13

Division of profits payable to shareholders

Question 14

PROFIT SHARING

Answer 14

Profits of the corporation are distributed to shareholders through dividends

Question 15

DECISION MAKING

Answer 15

The corporation is managed by a board of directors, which in turn is elected by the shareholders

Question 16

SOURCES OF CAPITAL

Answer 16

A corporation can get its capital in two ways: it can borrow or its directors can issue shares.

Question 17

TAXATION

Answer 17

– Because it is a separate legal entity, a corporation pays its own taxes

Question 18

TRANSFERABILITY

Answer 18

The fact that a corporation has a separate legal identity often allows for easy transference of an ownership interest represented by shares.

Question 19

PERPETUAL EXISTENCE

Answer 19

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

Question 20

Franchise

Answer 20

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

Question 21

DISCLOSURE REQUIRMENTS

Answer 21

Franchisors are required to deliver a disclosure document to prospective franchisees 14 days prior to franchisees entering into binding agreements or paying money

Question 22

RIGHT OF ASSOCIATION

Answer 22

Franchises have the right to associate with one another and form or join an organization of franchisees

Question 23

DISTRIBUTORSHIP OR DEALERSHIP

Answer 23

Contractual relationship where one business agrees to sell another’s product

Question 24

STRATEGIC ALLIANCE

Answer 24

Cooperative arrangement among businesses that may involve joint research, technology sharing, or joint use of productions

Question 25

JOINT VENTURE

Answer 25

Grouping of two or more businesses to undertake a particular project

Question 26

SALES AGENCY

Answer 26

Arrangement in which a manufacturer or distributor contracts with an agent to sell goods or services on its behalf

Question 27

PRODUCT LICENSING

Answer 27

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

Question 28

Share Structure

Answer 28

The shares that a corporation is permitted to issue by its constitution

Question 29

Class of Shares

Answer 29

• 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

Question 30

Widely held (or public) corporation

Answer 30

A corporation whose shares are normally traded on a stock exchange

Question 31

Closely held (or private) corporation

Answer 31

A corporation that does not sell its shares to the public

Question 32

NUANS Report

Answer 32

a document that shows the result of a search for business names

Question 33

Debt Financing: Bonds and Debentures

Answer 33

Bonds (a debt owed by the corporation; usually a secured debt)

Debentures (a debt owed by the corporation; usually an unsecured debt)

Question 34

Equity Financing: Securities

Answer 34

Securities. Shares (shareholders are owners) and Bonds (bondholders are creditors) issued by a corporation