Forms of business ownerships Flashcards
what are the 3 types of business ownerships
sole proprietorship, partnership and corporation
is the proprietor of a sole proprietorship liable for 100% of the debts ?
yes
can the sole proprietor sell their business?
no
when are partnerships generally used?
when there is a tax advantage or when the law requires you to do so
what is solidary liability ?
each partner can be held liable for 100% of the partnerships debt
in a sole proprietorship when does the business terminates?
when the owner dies or when they decide to stop operating
whats the most common form of parntership
general partnership
whats a partnership agreement
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
aside from a general partnership, whats another type of partnership?
limited partnership (contained general and ls special partners)
in a limited partnership, how liable is a special partner?
they do not have personal liability for the debts of the partnership
Are general partners liable for business debts?
yes
what are the 3 persons of notes
directors, officers and shareholders
do shareholders manage the company
no
can shareholders be a legal persons and a human beings
yes
shareholders vote to elect who?
directors
who are the mandataries of the company
directors and officers
can directors be shareholders and officers of the company
yes
Can officers be legal persons
no they must be human beings
do shareholders have unlimited liability
no they have limited liability
Class A shares are
common shares
Class B shares are
Preferred shares
What are the 3 rights of common shares
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)
how is a corporate name that consists solely of numbers
numbered companies
pros of issuing shares
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
cons of issuing shares
more shares (especially voting shares) means dilution of votes
can class B shares vote?
No. unless stated in the article of incorporation
which class of share received a fixed dividend
Preferred shares (Class B)
whats a participating dividend
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
whats a cumulative dividend
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
what is a convertible share
shareholder has option to convert Preferred shares to Common shares (can sometimes be exercised in a punitive situation)
what is a redeemable-retractable share
company can force shareholder to sell shares back to the company (for several reasons)
whats a derivative action
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
whats the notion of corporate veil
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
whats a pre-incorporation contract
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
what are the important things to state in a pre-incorporation contract
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.
whats the notion of indoor management rule
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
what are the qualifications of a director
a person of sound mind, of legal age, not prohibited by the court from holding such a position and not bankrupt
Can a bankrupt person be a director
no
What is the fiduciary duty of a director and officer
directors and officers have a fiduciary duty to act in the best interests of the corporation
for how many months of unpaid wages are directors liable for
6 months
are directors liable for dividends?
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
As a general rule, are directors liable for the debts of the corpo
no
what are the 4 situations when a director is liable for the debts of the corpo
Liability for wages
Liability for dividends
QST & GST
Employee income tax deductions at source
By who are officers appointed
Directors
whats the USA
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
what can a USA do (2 things)
- grant a form of veto power to minority shareholders
- 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.
Can a USA be used on a public company
No. A USA can only be used for a private (not publicly traded) company
are officers mandataries of the corpo
yes
Whats the principle function of a shareholder
vote to elect directors at annual shareholders meeting
if the shareholder is a human being they can be….
a director and an officer of the corpo
who are the defacto owners of the company
shareholders
whats equity financing
issuing shares
what are the 3 duties of directors
fiduciary duty, conflict of interest and confidential information
corpo can decide to incorporate under
federal or pronvincial laws
how many files are formed every year for corpos
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
