chapter 6: forms of business ownership Flashcards
how can an enterprise or business operation be organized?
sole proprietorship
partnership
corporation
which type of business ownership can the provincial government regulate?
proprietorships
partnerships
how are proprietorships and partnerships considered personal forms of business ownership?
the owner undertakes the risk and keeps the profit
most common form of business start ups
why?
sole proprietorship
because it is the least complex form
sole proprietorship
any and all enterprise undertaken by one single individual who remains sole owner and retains full authority to manage the administration
start up registration
any person who carries on business is required to register this fact with the Quebec government authorities
–> unless they use their own personal name
if using another name, we have to register with the registraire des enterprises
–> gives the owner permanent rights to its use and prevents anyone else from using the same name
the owner of a sole proprietorship
one individual
contains 100% financial control and interest over company
partnership si formed once he chooses to involve someone else as owner
can someone transfer a sole proprietorship?
nooo
only with inheritance or buying estate ion case of death
liable of sole proprietorship
the owner has unlimited liability and personal liability for debts
all property of owner may be seized or sold if can’t meet debt
if goes bankrupt, so does the owner
even in death owner must be able to pay out obligations
management of a sole proprietorship
owner is the only one that manages
does not have to consult anyone for permission
profits of a sole proprietorship
taxed as personal income alongside any other income
termination of a sole proprietorship
terminated when the business owner dies or wishes to cease doing business
still responsible for debts undertaken
advantages of a sole proprietorship
simple registration
inexpensive to start
all profits belong to owner
all decisions made by owner
flexibility
simple to dissolve
enjoyment and challenge of personal involvement
operations and results can be kept a secret
disadvantages of a sole proprietorship
owner is personally liable for all debts (unlimited liability)
difficult to obtain outside financing
depends on skills of owner
lack of continuity
not legal distinction between and business
restrictions on hiring members of owner’ s family including suppose and children under 19
may be difficult to sell good will if reputation depends heavily on personality of owner
all profits are considered to be earned by the sole proprietor personally and are taxed at full personal income tax rates
contract of partnership
when two or more people agree to operate a business together
–> each partner agrees to contribute something to their common venture
–> they share profit and losses resulting from their efforts
partnership agreement
writing down the details of the business relationship of the partnership
functions as a written contract
registration of a partnership
requires a Partnership Declaration
Partnership Declaration
will identify the partners, location, and type of business they intend to operate
ownership of partnership
ownership of asset determined by partners themselves
division does not have to be equal
transfer of ownership of partnership
possible but within limits
partners may agree on how to deal with each other’s share of assets depending on circumstances such as death and cessation of involvement
liability of a partnership
also a personal form of business
both partners have unlimited liability
partners are solidarity liable for the partnership debts
management of a partnership
characteristics can be included in the partnership agreement
partners agree between themselves how to run shiiit
profits in a partnership
both partners are obligated to share the profits
–> if one doesn’t receive any, the agreement is considered null according to the Civil code
taxed as personal income
termination of a partnership
easy to do
death, bankruptcy, or simply by one of the partners leaving
limited partnership
general partners have unlimited liability
–> only one allowed to partake in day to day operations
limited partners (special partners) only liable of the amount they put in
–> have to be stated in partnership declaration
–> nor permitted to take part in day to day operations
advantages of a partnership
simple registration
inexpensive to start
profits shared only between partners
pe
partners able to assis each other
partners pool their atlents
quite flexible
simple to dissolve
more scope for specialization among partners
enjoyment of personal involvement
limited partnerships allows for limitations of liabilities
disadvantages of a partnership
partners personally liable for all debts
–> one partner may be required to pay it all
potential conflict between partners
lack of continuity
difficult to transfer ownership
requires a written agreement if partners do not share equally or if some partners are to be excluded from carrying out some of the functions of the business
partner’s share of the profits taxed at full personal income tax rares
restriction on hiring members of partner’s families
description of a corporation
separate entities
–> like a legal person
owners not liable In any way (just their investment reaching zero)
do we need government approval to incorporate
yeee
Canada Business Corporation Act (CBCA)
incorporating under federal law
corporation has capacity to carry on business in all parts of Canada
required to comply with all provincial laws that generally apply to all firms
Quebec Business Corporations Act (QBCA)
incorporating provincially in Quebec
company may carry business in other provinces , b ut if it wishes to branch in another province, it will be required to obtain and pay for a licences from each province in which it wish to operate
what do companies need to do to request a federal incorporation?
completion and filing of a document called the Article of incorporation
who can file the Article of Incorporation
person over 18 years
person sound of mind
not a bankrupt person
certificate of incorporation
states the file number of the corporation in the government recors
states the official date on which the corporation came into existence
what do companies need to do to request a Quebec incorporation
no bankruptcy and over 18 and sane of mind
need to file articles of incorporation
–> government issues a certificate of constitution
—-> establishes the date on which the corporation comes into existence
corporation by laws
state how the company may borrow money, issue bonds or debentures, elect directors and officers, and hold meetings of shareholders
any future changes required shareholder approval
purpose of a registered or head office in canada or Quebec (province)
provide a place where the important documents of the corporation are to be kept
law requires to have commons or preferred shares
common
–> ownership rests on their hands
preferred pas obliger
why are preferred shares referred as no par value?
they don’t reflect a set in stone value of company shares
benefits of preferred shares
safer
dividends first (seniority)
cumulative dividends
can receive full initial investment at liquidation
evidence of ownership in a corporation
share certificate
debenture
a guarantee to repay, giving the creditor a preferred right to collect his or her debt
same as bond but without collateral
corporate veil
share owners not subject to corporation not being able to pay off debts
when are shareholders liable?
- when they make promises tp contribute capital or other assets to the corporation in the future
- when shareholder committed fraud against corporation
- when committing tax fraud
- having unpaid debts prior top incorporating
when can a director be held liable
a) for mixing his personal property with that of the company or benefitting personally from use of company property without permission
b) for failure to disclose any conflict of interest which he may have
c) for failure to disclose personal acquisition of corporation property pr contracts entered into with the corporation
d) for up to six months of unpaid wages of employees
e) for payment of any dividend which would render the corporation insolvent or impair the capital corporation
f) for the difference, if they have issued shares for a consideration other than money, between the consideration received and the fair market value of the shares
unanimous shareholder’s agreement
enables shareholders to restrict the powers of the directors
–> if they choose to take over certain management rights, they will then be held accountable to the same legal standards as the BOD and could be pursued personally for failing to meet these standards
