Chapter 1 - Forms of Business Entities

Question 1

most common form of company in Canada?

Answer 1

Sole proprietorship

Question 2

When should a Sole proprietorship form be used? (2)

Answer 2

1- company has limited assets (service sector)
2- low revenue

Question 3

The main characteristics of a sole proprietorship are as follows (7)

Answer 3

• owner liable for company’s debts and obligations.
• simple to create, manage and dissolve
• profits and losses go to one person.
• net business income / loss added to other income on owner’s personal income tax return
• Financing of the company limited because depends on owner’s resources, credit history, and ability to borrow.
• creditors can seize is personal assets.
• Little scope for financial and estate planning, given legal and tax overlap, between sole proprietor and business

Question 4

The Civil Code of Quebec recognizes only three kinds of partnerships:

Answer 4

• Undeclared partnerships (sociétés en participation)
• Limited partnerships (sociétés en commandite)
• General partnerships (sociétés en nom collectif)

Question 5

all Quebec general and limited partnerships that are not registered are considered to be

Answer 5

undeclared partnerships

Question 6

Limited partnerships consist of two categories of partners:

Answer 6

general partners
special partners

Question 7

limited partners are responsible for…

Answer 7

the partnership’s debts and obligations only up to the amount of their contribution

Question 8

general partners characteristics (4)

Answer 8

• contribute their work, expertise, and experience to the limited partnership
• authorized to administer and represent the partnership.
• Only ones that may transact business and have the authority to bind it in a contract.
• liable for the partnership’s debts.

Question 9

Each partner of a general partnership is solitarily liable for

Answer 9

the enterprise’s obligations and certain debts, independent of the respective shares of each partner in the business.

Question 10

examples of general partnerships (2)

Answer 10

• lawyer’s practice
• dentist’s practice

Question 11

A nominal partnership is an agreement whereby certain professionals operate as ___ and agree to share ___

Answer 11

• sole practitioners
• common expenses and offices

Question 12

Nominal partnership is not covered as such in __

Answer 12

the Civil Code of Quebec

Question 13

Partnerships have three essential characteristics:

Answer 13

• Partners’ contributions
• Profits to be shared among partners
• Willingness to work together and co-operate in pursuit of a common objective

Question 14

distinguishing characteristic of a partnership is that it identifies itself by ___ and must include the term referring to ___

Answer 14

• a name common to the partners in its dealings with third parties
• general partnership

Question 15

General Partnership: A common approach is to divide profits on a basis reflecting each person’s efforts during the fiscal period. These efforts may be determined based on the following factors: (4)

Answer 15

• Minimum remuneration
• Services billed or sales made
• Hours worked
• Compliance with a minimum number of hours to be worked

Question 16

General Partnership Charitable donations tax treatment (individual and business) (2)

Answer 16

• Give rise to non-refundable tax credits for individuals
• Partnership cannot claim deductions for these donations in computing its revenue or losses for income tax purposes.

Question 17

A corporation differs from a sole proprietorship and a general partnership in several ways (7)

Answer 17

• SEPARATE LEGAL ENTITY
• LIMITED LIABILITY OF SHAREHOLDERS
• unlimited life.
• SHAREHOLDERS ARE NOT INVOLVED IN MANAGEMENT
• DOUBLE TAXATION - company and shareholders (div, int, wages)
• reduced taxes and Capital gain exemption
• Financing options (can issue shares)

Question 18

the declaration of ___ must indicate the name and domicile of each of ___ and ___ , and their contributions to the common stock

Answer 18

a limited partnership
the general
special partners