Week 13

Question 1

Sole Proprietorship

Answer 1

• the oldest, simplest form of business organization
• the most often used form of business organization
• no legislation, but you may need to obtain a business license and register a trade name
• easy to set up
• an unincorporated business organization that has only one owner
• the owner has unrestricted legal responsibility for obligations
• no legal distinction between the business and its owner

Question 2

Sole Proprietorship pros

Answer 2

• least regulated
• lower costs than partnerships and corporations
• faster to form than partnerships and corporations
• efficient decision making

Question 3

Sole Proprietorship cons

Answer 3

• unlimited personal liability
• limited access to capital (can only borrow)
• limited resources
• limited lifespan (dies with owner)
• tax disadvantages (must claim all business income with personal taxes)
• difficulty to transfer

Question 4

The partnership

Answer 4

A business carried on by two or more persons with the objective of making a profit.
- it is similar to a sole proprietorship, in that neither has a legal personality- or legal existence- separate from the people who compromise them.
- it is the legal relationship between two or more people who do business together for profit.

Question 5

When a partnership exists

Answer 5

-When two or more people “carry on a business in common with a view toward profit”
- it can include people who intend to be partners, as well as those who may not intend to be, but who act as if they were partners
- it excludes charitable and not- for- profit organizations.

Question 6

Rules to govern partnerships

Answer 6

Partnership legislation (in place in every province)
Contract law
Agency law

Question 7

The partnership financial liability

Answer 7

Partners are fully responsible for all debts of the partnership

Question 8

Joint liability

Answer 8

-Liability is shared by two or more parties (partners), where each is personally liable for the full amount of the obligation
-A bank can proceed against the partner with the most assets.

Question 9

More partners

Answer 9

Partners are looking their resources
- this can result in strong management
- this can also result in disagreement, disputes
more opportunities for sources of capital

Question 10

Partnership Act

Answer 10

Partnership law based in large part in contractual law, agency law, and provincial partnership legislation

Question 11

Partnership act sets out

Answer 11

Default and optional rules for partnerships that can be varied by written agreement:
- when a partnership exists
- relationship of partners to outsiders
- relational if partners to each other
- how and why a partnership ends.

Question 12

Relationship of partners to outsiders

Answer 12

-Partners act for themselves and for their partners (agency relationship)
- the firm is responsible for decisions made by one partner without the agreement of the others
- this relationship is governed by partnership law, the partnership act. Not a partnership agreement

Question 13

The partnership act and the law of agency

Answer 13

Make partners jointly and severally liable for obligations of the business

Question 14

Joint and Several Liability

Answer 14

Individual and collective liability for a debt. Each liable party is individually responsible for the entire debt as well as being collectively liable for the entire debt.

Question 15

Partnership Pros

Answer 15

• faster to form than corporation
• lower costs than corporation
• greater access to resources

Question 16

Partnership cons

Answer 16

• unlimited personal liability
• challenges in decision making
• more difficult to transfer than corporation
• tax disadvantages

Question 17

Limited Partnership (LP)

Answer 17

A partnership in which the liability of some of the partners is limited to their capital contribution
- at least one partner had unlimited liability
- general partners have unlimited liability

Question 18

Corporation

Answer 18

A distinct legal entity in law and capable of assuming its own obligations
- it is usually the safest vehicle for conducting business because the owners are normally shielded from personal liability
- it is managed by a board of directors elected by the stakeholders
- officers can be hired by the board to assist in running the corporation

Question 19

Shareholder

Answer 19

A person with an ownership interest in a corporation

Question 20

Director

Answer 20

A person elected by shareholders to manage a corporation.

Question 21

Limited liability corporation

Answer 21

Responsibility for obligations restricted to the amount of investment

Question 22

Profit sharing

Answer 22

Profits of the corporation are distributed to shareholders through dividends

Question 23

Dividend

Answer 23

A dividend of profits payable to shareholders

Question 24

Corporation can get capital by

Answer 24

Borrowing or issuing shares

Question 25

What is an important source of capital for a corporation?

Answer 25

Shares.
- they represent an equity position in the corporation for the shareholder, who can receive dividends (or nothing if corporation fails)

Question 26

Taxes and corporation

Answer 26

A corporation pays its own taxes separately from the shareholder

Question 27

Corporation Ownership

Answer 27

Ownership can be represented by shares, and easily transferred.

Question 28

The corporation pros

Answer 28

-limited liability of shareholders
- flexibility of structure
- greater access to capital
- continuous existence
- tax benefits
- transferability

Question 29

Corporation Cons

Answer 29

-Higher costs
-greater regulation
-possible loss of control
- potential bureaucracy

Question 30

Joint venture

Answer 30

Is an example of a business arrangement.
- no precise legal meaning
- a joint venture is an association of business entities that unite to carry on a business venture
- usually the entities will share profits and losses from the venture

Question 31

joint venture can be a

Answer 31

Partnership
The rules of a partnership apply

Question 32

equity joint venture

Answer 32

Parties incorporate a separate corporation for the project and each holds shares in the corporation.
- the rules of incorporation apply

Question 33

Strategic alliance

Answer 33

• business arrangement
• no precise legal meaning
• a strategic alliance is a cooperative arrangement among businesses that may involve joint research, technology sharing, or joint use of productions.