chapter 6: forms of business ownership

Question 1

how can an enterprise or business operation be organized?

Answer 1

sole proprietorship

partnership

corporation

Question 2

which type of business ownership can the provincial government regulate?

Answer 2

proprietorships

partnerships

Question 3

how are proprietorships and partnerships considered personal forms of business ownership?

Answer 3

the owner undertakes the risk and keeps the profit

Question 4

most common form of business start ups

why?

Answer 4

sole proprietorship

because it is the least complex form

Question 5

sole proprietorship

Answer 5

any and all enterprise undertaken by one single individual who remains sole owner and retains full authority to manage the administration

Question 6

start up registration

Answer 6

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

Question 7

the owner of a sole proprietorship

Answer 7

one individual

contains 100% financial control and interest over company

partnership si formed once he chooses to involve someone else as owner

Question 8

can someone transfer a sole proprietorship?

Answer 8

nooo

only with inheritance or buying estate ion case of death

Question 9

liable of sole proprietorship

Answer 9

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

Question 10

management of a sole proprietorship

Answer 10

owner is the only one that manages

does not have to consult anyone for permission

Question 11

profits of a sole proprietorship

Answer 11

taxed as personal income alongside any other income

Question 12

termination of a sole proprietorship

Answer 12

terminated when the business owner dies or wishes to cease doing business

still responsible for debts undertaken

Question 13

advantages of a sole proprietorship

Answer 13

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

Question 14

disadvantages of a sole proprietorship

Answer 14

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

Question 15

contract of partnership

Answer 15

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

Question 16

partnership agreement

Answer 16

writing down the details of the business relationship of the partnership

functions as a written contract

Question 17

registration of a partnership

Answer 17

requires a Partnership Declaration

Question 18

Partnership Declaration

Answer 18

will identify the partners, location, and type of business they intend to operate

Question 19

ownership of partnership

Answer 19

ownership of asset determined by partners themselves

division does not have to be equal

Question 20

transfer of ownership of partnership

Answer 20

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

Question 21

liability of a partnership

Answer 21

also a personal form of business

both partners have unlimited liability

partners are solidarity liable for the partnership debts

Question 22

management of a partnership

Answer 22

characteristics can be included in the partnership agreement

partners agree between themselves how to run shiiit

Question 23

profits in a partnership

Answer 23

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

Question 24

termination of a partnership

Answer 24

easy to do

death, bankruptcy, or simply by one of the partners leaving

Question 25

limited partnership

Answer 25

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

Question 26

advantages of a partnership

Answer 26

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

Question 27

disadvantages of a partnership

Answer 27

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

Question 28

description of a corporation

Answer 28

separate entities

–> like a legal person

owners not liable In any way (just their investment reaching zero)

Question 29

do we need government approval to incorporate

Answer 29

yeee

Question 30

Canada Business Corporation Act (CBCA)

Answer 30

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

Question 31

Quebec Business Corporations Act (QBCA)

Answer 31

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

Question 32

what do companies need to do to request a federal incorporation?

Answer 32

completion and filing of a document called the Article of incorporation

Question 33

who can file the Article of Incorporation

Answer 33

person over 18 years

person sound of mind

not a bankrupt person

Question 34

certificate of incorporation

Answer 34

states the file number of the corporation in the government recors

states the official date on which the corporation came into existence

Question 35

what do companies need to do to request a Quebec incorporation

Answer 35

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

Question 36

corporation by laws

Answer 36

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

Question 37

purpose of a registered or head office in canada or Quebec (province)

Answer 37

provide a place where the important documents of the corporation are to be kept

Question 38

law requires to have commons or preferred shares

Answer 38

common

–> ownership rests on their hands

preferred pas obliger

Question 39

why are preferred shares referred as no par value?

Answer 39

they don’t reflect a set in stone value of company shares

Question 40

benefits of preferred shares

Answer 40

safer

dividends first (seniority)

cumulative dividends

can receive full initial investment at liquidation

Question 41

evidence of ownership in a corporation

Answer 41

share certificate

Question 42

debenture

Answer 42

a guarantee to repay, giving the creditor a preferred right to collect his or her debt

same as bond but without collateral

Question 43

corporate veil

Answer 43

share owners not subject to corporation not being able to pay off debts

Question 44

when are shareholders liable?

Answer 44

1. when they make promises tp contribute capital or other assets to the corporation in the future
2. when shareholder committed fraud against corporation
3. when committing tax fraud
4. having unpaid debts prior top incorporating

Question 45

when can a director be held liable

Answer 45

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

Question 46

unanimous shareholder’s agreement

Answer 46

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