Ch 5: Business & Organizations

Question 1

Name the 3 options for Organizing a Business

Answer 1

1. Sole proprietorship YOU
2. Partnership YOU and PARTNERS
3. Corporation YOU in the ‘background’ [also Joint Ventures]

Question 2

#1 Sole Proprietorship: 
Pros & cons & Legal connotations

Answer 2

You get all $$

HOWEVER – you risk everything

No legal separation b/t you & your Business

Question 3

2 Partnership

(When two or more people or corporations arrange to carry on business together they can form a partnership.)

What are the Pros & cons?

Answer 3

• Partners share all $$
• Partners carry “all” Risk
• HOWEVER – EACH PARTNER may risk everything Depending on legal separation

• Fiduciary duty – relationship of
special trust
• Act only in best interests of partnership • No conflicts or ‘secret’ profits

Question 4

#2 Partnership
Legal documentation 
(less important)

Answer 4

• Partnership Act of BC
• Partnership agreement govern roles
• If NO AGREEMENT: each partner can ‘bind’ other partners
• Agreement may not reduce risk of JOINT LIABILITY depending on type

Question 5

#2 Partnerships:
General Partnership - Description

Answer 5

In a general partnership the partners are responsible for all aspects of the business, including the debts of the partnership.

Question 6

#2 Partnerships:
Limited Partnership - Description

Answer 6

In a limited partnership there can be two types of partners - general and limited. Each type of partner has different rights and responsibilities. Generally speaking, there is a limit on the liability of a limited partner, while the general partner’s liabilities are not limited.

• Liability limited to contribution of
limited partner
• Only if limited partner did not
participate actively in business

Question 7

#2 Partnerships:
Limited Liability Partnership - Description

Answer 7

A limited liability partnership (LLP) is similar to a limited partnership however there are no general partners and all partners
have limited liability.

• Liability limited to assets of ‘offending’ partner and the
partnership

• BUT NOT the personal assets of the
other individual partners

Question 8

#3 Corporations:
What is a corporation/company?

Answer 8

• Corp is a new legal “person”(full capacity)
• Corp gets (equity & profits & debt)
• Corp takes all risk
because there is a legal separation!

Question 9

#3 Corporations:
Do shareholders have risk?

Answer 9

• Shareholders get equity via dividends
• Shareholders have ‘NO’ risk
• Their “liability is LIMITED”

Question 10

#3 Corporations:
Max risk of the corporation is \_\_\_

Answer 10

Max RISK is the assets of the Corp
•Liability is LIMITED IF
     • Register federally/ provincially 
        • Use names:
             •Corporation or Corp. 
               •Limited or Ltd. = notice

Question 11

#3 Corporations: 
Advantage #1

Answer 11

• No personal liability (very difficult to “pierce the corporate veil”)
• Taxes
• BUT special rules apply to engineers practicing within a corporation

Question 12

3 Corporations:

Advantage #2
Separate legal entity

Answer 12

• Corporate organization and control
  * Shareholders
  * Directors
  * Officers

Question 13

3 Corporations:

Advantage #3
Public v Private

Answer 13

• PRIVATE Closely Held – small group of shareholders

* PUBLIC – traded on stock exchange

Question 14

#3 Corporations
Officers / Directors / Shareholders have:

Answer 14

• Fiduciary Duty
  
  • Conflict of interest
  • Liability
  • Insider trading