Sole Proprietorship, Co-operative, Partnership Flashcards
Concept of Legal Liability
legal liability is a right recognized and enforced by law and result in court order remedy
Liability
Debt or obligation. Right recognized law that can be enforced by a person, court process and result in court order remedy
Vicarious Liabilities
liabilities (torts) committed by employees in the course of their employment is liability of employer
Limited Liability
How business owners can protect their personal assets from business liabilities. Separate entity
Common Law Liabilities created by courts (3)
Tort - people harm someone
Property + Ownership
Restitution - stolen/lost/damage
Statutory Liabilities (3)
Taxes, Partnership Act, Criminal Act
Liabilities and Legal Risk Management
considering potential liabilities that the business may encounter
5 Steps of Legal Risk Management
- Legal Audit of operation: examine every action in which the business is involved
- Prioritize potential risk and liabilities: likelihood of them occurring and consequence
- Strategies: prevention and reaction
- Implementation and Revision
- On going revision
Common Law process of there being a tort liability (3)
Intentional Act, Causation, Proscribed Harm
Civil Law and liability probabilities
Balance of probabilities, 50% + 1% so lower standards for lower consequences
What was capital crime and why did it have high standards
founds guilty then killed by state, higher standards of proof beyond reasonable doubt
4 Types of Risk Management
Avoid, Reduce, Transfer or Absorb the risk
Sole Proprietorships:
Type of legal entity?
Type of liability?
Who owns it?
legal entity not separate from owners
unlimited liability
owned by single individual
Sole Proprietorships:
How is income added and for what purpose?
Difficulty to set up and dissolve?
Income of sole proprietor for tax purposes
Easiest and simplest form of entity
Sole Proprietorships how does it exist with operations and some provisions of external factors
Whenever an individual carries on business for his or her own account without either medium of an incorporated company or participation of other individuals, except employees
how does unlimited liability work for sole proprietorship?
All business and personal assets of the sole proprietor can be seized in fulfillment of the sole proprietorship business obligations and liabilities
How does naming a business in sole proprietorship work?
Carry business in own name = don’t have to register, otherwise can’t name that would be confused with one that already exists and must register
3 other Advantages of Sole Proprietor (not basic definition)
*2 with name registration
- Deal w/ assets without interference
- Company office in offices in MB where name registrations occurred
- Business name registrations act: requires sole proprietorship to register name within 90 days of reservation
(Prophylactic Actions) How to protect yourself from unlimited liability (4)
Insurance, Investments in Creditor Proof, Redistribute property, transfer to estate
Prophylactic Action - Insurance
Property, Third party insurance, higher the business risk = higher insurance cost
Prophylactic Action - Investments in creditor proof assets
Ones creditors cannot attack etc pension plan, RSP’s, Insurance, transfer to spouse
Prophylactic Action - redistribute estate and transfer assets to individuals
2 provisions
Must be absolute transfer done well in advance of going into business
If you go bankrupt, trustee can review transaction of up to 5 years
Why shouldn’t you transfer assets or property to spouse or Why would property exempt from division in marriage act be dangerous to transfer?
In case of separation, spouse can take all of it or u may only receive back 50% of property or some share. Rather than you originally having all of it
What assets/property are not divisible in marriage? (2)
Property acquired prior to marriage (only incremental amount), or property acquired through inheritance
What is a con to transferring assets/property to parents
If you transfer to parents and they pass away and their will is wrong then other beneficiaries can get your property
What is a prenuptial agreement
Determines the allocation of and supports payment in event of divorce (signed before marriage)
When do you want a prenuptial agreement?
When are you opposed?
You have more money than other spouse.
You have less money than the other spouse
Family Property Act
Extends to cohabitants of 3 years with conjugal relations
Types of Trusts - Testamentary
execution upon death by trustees
Types of Trusts - Intervivos
Better for sole proprietors in terms of asset protection, not as good of tax benefit, but better for protection
Cooperatives Examples
where are they prominent
what type of idea are they?
- Co-op, credit unions, Mountain Equipment co-op, Red River co-op
- Prominent in west Canada and prairies
- political idea
Cooperatives description
provide members with g/s at a cost lower than cost of similar g/s in marketplace. Sell goods in a way to maximize returns of members. Eliminating middle men in economy
- Cooperatives try to sell their product _____ to _____ as possible
- why do consumer attempt to buy from producers as possible?
- directly, consumer
- Goods can be delivered cheaper
Why were cooperatives created in western Canada?
Forced to pay high prices of g/s from the only producer in Ontario. Buying else meant lots of tariffs
Cooperatives basic principles (4)
- Each member has one vote, regardless of number of shares held or capital contributed
- No proxy votes, need to be there at meeting to vote
- No fixed rate return on capital
- profits not required to operate co-operative are paid to members in accordance w/ quantity of goods purchased or sold through organization by the member
Partnerships (Firm)
Is the relation which subsists between persons carrying on a business with the view of profit
Partnership Act
what is second source of partnership act
can judges make law?
All law pertaining to partnerships.
Second source is case law
Judges can make law if not in partnership act
1.Partnership Agreement
2. what if no agreement exists?
contract between all of the partners in partnership. Establishes rights and duties, if no agreement exists, partners share profits and liabilities
Express Agreement
No agreement but express to each other that they want to go into business
Implied Agreement
Judge who implies that parties want to be in business together.
Claim by another party can be made that the relationship was done with a partnership
Revenue Sharing is not profit sharing and it is important because of the
consequences of finding the partnership does exist as there are various features
Partnership and need for business.
What it includes
What is doesn’t include
Include: Every trade, occupation or profession
Doesn’t include every activity carried on for profit
What have courts highlighted about Sharing of profits and partnership
sharing of the profits of a business is highly indicative of existence of a partnership especially if there is no alternative method of payment
Additional evidence which is in conjunction with the sharing of profits includes (3)
Contribution of capital
Active role in business
Existence of the ongoing business as opposed to an isolated transaction
Becoming partnership by Estoppels (precluded from denying it)
where you hold yourself out to be a partner even through you’re not or if you allow someone to say they are your partner and you don’t protest it
Consequence of becoming a partner is
the partner’s unlimited liability to outsiders who have dealt with the partnership
Partner rules in organization:
- Suing
- Employee
- Assets
- Can’t sue partnership but can sue other partner
- cannot be employees
- Separate assets of each partner are at risk to corporations liabilities
All Partners are agents of the partnership so how does this work with liabilities(2)
- Each individual partner can go and create liabilities of partnership
- create liabilities that you all are responsible for
Retiring partners and liability
New partners and liability
- still liable for obligations incurred during their time as a partner
- not liable for obligations existing prior to their joining
How to terminate properly from a partnership (2)
- publish a notice that partnership is dissolve
- Provide actual notice to people who have dealt frequently and recently with firm
