Forms of business ownerships Flashcards

1
Q

what are the 3 types of business ownerships

A

sole proprietorship, partnership and corporation

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2
Q

is the proprietor of a sole proprietorship liable for 100% of the debts ?

A

yes

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3
Q

can the sole proprietor sell their business?

A

no

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4
Q

when are partnerships generally used?

A

when there is a tax advantage or when the law requires you to do so

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5
Q

what is solidary liability ?

A

each partner can be held liable for 100% of the partnerships debt

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6
Q

in a sole proprietorship when does the business terminates?

A

when the owner dies or when they decide to stop operating

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7
Q

whats the most common form of parntership

A

general partnership

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8
Q

whats a partnership agreement

A

a private contract signed by all of the partners which specify the roles, contributions, functions and share of profits of each partner. This contract should also provide for a mechanism to buy/sell/transfer the interests of a partner

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9
Q

aside from a general partnership, whats another type of partnership?

A

limited partnership (contained general and ls special partners)

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10
Q

in a limited partnership, how liable is a special partner?

A

they do not have personal liability for the debts of the partnership

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11
Q

Are general partners liable for business debts?

A

yes

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12
Q

what are the 3 persons of notes

A

directors, officers and shareholders

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13
Q

do shareholders manage the company

A

no

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14
Q

can shareholders be a legal persons and a human beings

A

yes

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15
Q

shareholders vote to elect who?

A

directors

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16
Q

who are the mandataries of the company

A

directors and officers

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17
Q

can directors be shareholders and officers of the company

A

yes

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18
Q

Can officers be legal persons

A

no they must be human beings

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19
Q

do shareholders have unlimited liability

A

no they have limited liability

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20
Q

Class A shares are

A

common shares

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21
Q

Class B shares are

A

Preferred shares

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22
Q

What are the 3 rights of common shares

A

the right to vote (elect directors), the right to receive dividends (surplus of profits) if declared by the company, and the right to receive residual property (if the company is voluntarily liquidated)

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23
Q

how is a corporate name that consists solely of numbers

A

numbered companies

24
Q

pros of issuing shares

A

company does not acquire additional debt, it is not borrowing additional money to be paid back, there is no obligation per say, to pay the shareholders back

25
Q

cons of issuing shares

A

more shares (especially voting shares) means dilution of votes

26
Q

can class B shares vote?

A

No. unless stated in the article of incorporation

27
Q

which class of share received a fixed dividend

A

Preferred shares (Class B)

28
Q

whats a participating dividend

A

preferred shares will be counted as common shares and receive a second dividend (as if they were common shares) after having first received the preferred fixed dividend

28
Q

whats a cumulative dividend

A

if no dividend is declared and paid in year one, then the dividend, if declared and paid in year two, will be doubled. Remember, a preferred share dividend is an amount which has been fixed in advance

29
Q

what is a convertible share

A

shareholder has option to convert Preferred shares to Common shares (can sometimes be exercised in a punitive situation)

30
Q

what is a redeemable-retractable share

A

company can force shareholder to sell shares back to the company (for several reasons)

31
Q

whats a derivative action

A

In case of fraud against the company, any interested person (a person with legitimate legal right/stake in the business) can petition the court to authorize said interested person to represent the company in a lawsuit against those who are defrauding the company
examples of interested persons: a director, an officer, a minority shareholder, a representative of a union/employee group

32
Q

whats the notion of corporate veil

A

One cannot hide behind a corporation to commit fraud on the general public/customers/creditors
While the company is separate from its directors, officers and shareholders, any person who uses the company to commit fraud can be held personally liable by the courts (person orchestrating the fraud). Lifting the corporate veil means that the court will look behind the “corporate entity” and can hold the “directing mind” of the company personally liable for frauds committed in the name of the company

33
Q

whats a pre-incorporation contract

A

before setting up the company, you can sign a contract as mandatary, on behalf of a company not yet incorporated. You, the mandatary, must stipulate when signing (on the contract) that you will not be personally liable and that the company has not yet been incorporated, may never be incorporated and may never ratify the contract. If you follow the provisions of CCQ 319 and 320, you will not be personally liable

34
Q

what are the important things to state in a pre-incorporation contract

A

you will not be personally liable and that the company has not yet been incorporated, may never be incorporated and may never ratify the contract.

35
Q

whats the notion of indoor management rule

A

persons dealing with a corporation, in good faith, can assume that the directors and senior officers have the usual powers associated with their positions to represent the company in contractual undertakings

36
Q

what are the qualifications of a director

A

a person of sound mind, of legal age, not prohibited by the court from holding such a position and not bankrupt

37
Q

Can a bankrupt person be a director

A

no

38
Q

What is the fiduciary duty of a director and officer

A

directors and officers have a fiduciary duty to act in the best interests of the corporation

39
Q

for how many months of unpaid wages are directors liable for

A

6 months

39
Q

are directors liable for dividends?

A

only if if the directors issued a dividend that renders the company insolvent, they are personally liable to pay that dividend back to the company

40
Q

As a general rule, are directors liable for the debts of the corpo

A

no

41
Q

what are the 4 situations when a director is liable for the debts of the corpo

A

Liability for wages
Liability for dividends
QST & GST
Employee income tax deductions at source

42
Q

By who are officers appointed

A

Directors

43
Q

whats the USA

A

Uanimous Shareholders Agreement : a private contract signed by 100% of the shareholders of the company that allows the shareholders to restrict the powers of the directors and to take on those powers themselves

44
Q

what can a USA do (2 things)

A
  1. grant a form of veto power to minority shareholders
  2. restrict the sale of shares owned by the existing shareholders by requiring existing shareholders to offer their shares, under a right of first refusal, to the remaining shareholders of the company.
45
Q

Can a USA be used on a public company

A

No. A USA can only be used for a private (not publicly traded) company

45
Q

are officers mandataries of the corpo

A

yes

46
Q

Whats the principle function of a shareholder

A

vote to elect directors at annual shareholders meeting

47
Q

if the shareholder is a human being they can be….

A

a director and an officer of the corpo

48
Q

who are the defacto owners of the company

A

shareholders

49
Q

whats equity financing

A

issuing shares

50
Q

what are the 3 duties of directors

A

fiduciary duty, conflict of interest and confidential information

51
Q

corpo can decide to incorporate under

A

federal or pronvincial laws

52
Q

how many files are formed every year for corpos

A

depends at which level you’re incorporated:
- federal 2: one at the federal level and one at each province you’re in
-provincial: 1 under the province you’re in