Chpt 24: Types of Business Flashcards
What is one reason a business may not want to incorporate?
Some professions forbid their members to practice as a corporation
Is it viable for a single person to incorporate their business? Why or why not?
It is because you only need one shareholder and one director. The fees are only a few hundred dollars.
However, you still have to go through the government.
How do you form a sole proprietorship in Canada?
Once you start doing business, you form a sole proprietorship automatically.
Unless you do business in certain fields which may require you to obtain either a municipal or provincial license.
What must be taken into consideration when operating a sole proprietorship?
- If you are not operating under the name of the owner, you must register the name
- Charged tax under personal income tax
- Must make employee payroll deductions for income tax, employment insurance and Canadian Pension
- Comply with human rights and health/safety regulations
Can a partnership be performed between two corporations?
Yes, partnerships can be formed by two or more persons, that being natural or legal people
Do you have to seek government approval to form a partnership?
No, but the Partnership Act governs a lot of the operations of a partnership
What is the formal definition of a partnership?
What are the four elements of this definition?
Partnership is the relation which subsists between persons carrying on a business in common with a view of profit.
1) A relationship
2) Between Persons
3) Carrying on a business in common
4) With a view of profit
What is considered a relationship between partners?
Usually a consensual and contractual agreement to be partners.
However, if two people have acted as partners without an oral or written contract, the courts may still treat them as such
What is not considered a business in the context of forming a partnership?
- Charitable organizations
- Joint trustees of an estate
- Public Boards
- Corporations
If Mitch and his teammates come together to purchase and manage a portfolio of securities, is this a partnership?
Nope
If Mitch and his teammates buy hockey sticks together to get the buy 10 get 10 free deal, is this a partnership?
Nope
What does the “with view of profit” element of a partnership mean?
Splitting profits of a business’s operations is strong evidence supporting the existence of a partnership.
When is splitting profits not evidence of a partnership?
- Repaying Debt
- Commission
- Paying family of a deceased partner
- Repaying a loan where interest is a percentage of profits
- Selling a business where goodwill is a proportion of profits
Is a partnership its own independent entity? Why or why not?
Legally it is not. A partnership is just a relationship between two or more persons. All assets and liabilities are the responsibility of the partners.
However, in some legal and accounting cases, partnerships can be treated as an independent entity.
What is a strategy that can be used to ensure the continuation of a partnership?
The Partnership Act lets, if the partners agree beforehand, for a partnership to continue in the event of someone dying, bankruptcy, or retirement.
There is also the concept of a firm that is recognized by the Partnership Act that allows people to join and leave under the same partnership.
Can a partnership own property?
No, the partners each own interest in property
Who is prioritized when a partnership and its partners have credit
- The partnership’s creditors have first dibs on the partnership’s assets
- If this is not sufficient, personal creditors of the partners have priority over the partnership’s creditors
Can you sue a partnership?
Yeah
Why is the partnership agreement important?
It will help resolve both legal disputes and personal disputes