Ch. 5 - Business Organizations

Question 1

Sole Proprietorship

Answer 1

legal term describing an individual carrying on business. individual gains all profits but is responsible an liable for all risk, debt, and obligations. No difference between the individual and sole proprietorship in law.

Question 2

Partnership

Answer 2

a group of individuals or corporations that pool their resources to run a business. Governed by Partnership Act. Each partner has authority to enter into contracts and carry on business in the name of the partnership but are jointly liable for all debts and obligations of the partnership. companies can become partners. Each partner owes the other a Fiduciary Duty, or relationship of special trust.

Question 3

Corporation

Answer 3

(aka company) a separate legal “person” created pursuant to federal or provincial statutes. Owned by shareholders, has directors and officers (president, VP, corporate secretary) who control the business and must use Corp or Ltd. to indicate the liability is usually limited to the corporation (corporate veil). If fraud is suspected, court may treat both the corporation and its principal shareholder(s) as one person (piercing the corporate veil). Can be public (stock exchange) or private (small group of shareholders).

Question 4

Limited Pertnership

Answer 4

have at least one general and one limited partner. general partner has unlimited liability whereas a limited partner are liable only for their financial contribution to the business and cannot participate in the business or they lose their limited liability status.

Question 5

Limited Liability Partnerships

Answer 5

a partnership in which the liability of a partner is limited only to the liability of that partner. must carry a prescribed level of liability insurance. if one limited liability partner is negligent, only that partner and the partnership as a whole are at risk.

Question 6

Corporate Officers and directors

Answer 6

owe fiduciary duty to corporation but not shareholders, must disclose conflicts of interest, have the ability to enter into contracts on behalf of the company. Some purchases or contracts can be entered by employees but may need to be cleared by officers & directors if the contract is large.

Question 7

Insider trading

Answer 7

occurs when investors use or are provided with privileged, non-public information to trade on securities or commodities markets in contravention of the law. may include the purchase or sale of shares prior to the disclosure of a corporate news release or info that will never be publicly released. Can lead to civil liabilities and criminal penalties.