Module 11-13

Question 1

Define sole proprietorship

Answer 1

Simplest form of business, comes into existence when a person starts carrying on a business on their own with out adopting another form of business organization

Question 2

Creating sole proprietorship

Answer 2

If a sole proprietorship wishes to use a name other than their own name, the trade name’ must be registered at the Alberta corporate registry to enable those who business with the entity to conduct a search to reveal the owners of the business

Question 3

Liability for the tort of passing off

Answer 3

Care must be taken to choose a name not already in use in a similar industry

Question 4

Key features of a sole proprietorship

Answer 4

No legal seperation between you and your business
Owner gets all the benefits and assumes all the legal risk associated with the business
Only one owner

Question 5

Why use a sole proprietorship?

Answer 5

Quick and easy to set up
Owner has 100% control
Easy to dissolve
One tax return

Question 6

What are 3 types of partnerships

Answer 6

General partnership
Limited partnership
Limited liability partnership

Question 7

What is a general partnership?

Answer 7

Existence when two or more people carry on business together with view to profit

Can arise automatically or by express agreement

Question 8

Inadvertent creation of a partnership

Answer 8

Provided the right criteria are present court will find a legal partnership even if that is not what the parties intended

Question 9

Possible indicators of partnerships include?

Answer 9

Enduring relationship ( as opposed to a one time project)
Stating an intention to form a partnership
Sharing of information access to bank accounts
Shared contribution of capital to the business
Joint ownership of property
Using a firm name such as advertising
Intention of sharing expenses, profits or losses
Joint participation in the management and control of the business
Holding out relationship as a partnership

Question 10

Risk and liability in a general partnership

Answer 10

Partners are liable for the contracts of their partners “ principle of mutual agency “

Each partner is deemed an agent of the other with power to bind other partners to contracts involving the business ( unless the third party is aware of limitations in a partners power)

Partners are personally liable for the debts and obligations of the partnership

Personal assets are at risk to satisfy claims even if fault of fellow partnership

Up to 100% of the debt or liability of the partnership, normally losses are shared on the same basis as profits are shared but this can be changed by agreement but any agreement has no effect on the rights of unaware third parties

Question 11

Why form a general partnership?

Answer 11

Many risks can be managed by insurance
May be only option for many types of professionals who may not beable to incorporate lawyers or accountants
No double taxation of income as with a corporation similar tax advantages as a sole proprietorship

Question 12

Fiduciary duties of partners

Answer 12

Cannot take advantage of business opportunity gained because of partnership ( unless consent )

Must be completely candid with eachother

Cannot complete without consent

Cannot use partnership property for personal gain (unless consent )

Property in name of one partner is impliedly held in trust for the others

Cannot use partnership acquired info for personal benefit without consent

Question 13

Formal requirements for general partnerships

Answer 13

Virtually none
Must file declaration of business is in trading, manufacturing, contracting, or mining with in 6 months

Must register firm name. Uniqueness is not required but subject to passing off risks

May need business licence

Written partnership agreement ( not required just recommended

Question 14

Default rules for partnerships

Answer 14

No partner is entitled to remuneration for acting in the partnership business

Ordinary decisions made by majority

Significant changes expulsion or admission of partners require unanimous consent

Business records must be available for inspection at place of business

Right to be reimbursed if pay debts of the partnership

Equal sharing of profits and losses

All partners can participate in management

Question 15

Limited partnerships

Answer 15

A type of partnership that allows for some of the benefits of incorporation within a partnership

The idea is that one or more partners is a limited partner meaning the partners liability is limited to his capital investment in the business

Question 16

Requirements for limited partnerships

Answer 16

Must be at least one general partner who remains 100% liable

Must file declaration at the corporate registry

Act prohibits limited partners from taking part in the management of the business but may give advice

Limited partners cannot be referred to as partners to third parties and name cannot appear in name of the firm

Consequences for breach - loss of limited partner status

Question 17

Limited liability partnerships

Answer 17

Only available to eligible professional partnerships charted accountants certified management

A relatively new development - a rose to a dress liability in large professional partnerships

Question 18

Features of limited liability partnerships

Answer 18

Similar to regular partnerships except that there is some liability protection

In Alberta a partner in a LLP is not liable for the negligence, wrongdoing, or misconduct of other partners, employees, agents, or representatives of the LLP

only those partnerships who are personally implicated in wrongful acts or ammunitions are subject to unlimited personal liability