Week 13 Flashcards
Sole Proprietorship
- 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
Sole Proprietorship pros
- least regulated
- lower costs than partnerships and corporations
- faster to form than partnerships and corporations
- efficient decision making
Sole Proprietorship cons
- 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
The partnership
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.
When a partnership exists
-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.
Rules to govern partnerships
Partnership legislation (in place in every province)
Contract law
Agency law
The partnership financial liability
Partners are fully responsible for all debts of the partnership
Joint liability
-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.
More partners
Partners are looking their resources
- this can result in strong management
- this can also result in disagreement, disputes
more opportunities for sources of capital
Partnership Act
Partnership law based in large part in contractual law, agency law, and provincial partnership legislation
Partnership act sets out
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.
Relationship of partners to outsiders
-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
The partnership act and the law of agency
Make partners jointly and severally liable for obligations of the business
Joint and Several Liability
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.
Partnership Pros
- faster to form than corporation
- lower costs than corporation
- greater access to resources
Partnership cons
- unlimited personal liability
- challenges in decision making
- more difficult to transfer than corporation
- tax disadvantages
Limited Partnership (LP)
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
Corporation
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
Shareholder
A person with an ownership interest in a corporation
Director
A person elected by shareholders to manage a corporation.
Limited liability corporation
Responsibility for obligations restricted to the amount of investment
Profit sharing
Profits of the corporation are distributed to shareholders through dividends
Dividend
A dividend of profits payable to shareholders
Corporation can get capital by
Borrowing or issuing shares
What is an important source of capital for a corporation?
Shares.
- they represent an equity position in the corporation for the shareholder, who can receive dividends (or nothing if corporation fails)
Taxes and corporation
A corporation pays its own taxes separately from the shareholder
Corporation Ownership
Ownership can be represented by shares, and easily transferred.
The corporation pros
-limited liability of shareholders
- flexibility of structure
- greater access to capital
- continuous existence
- tax benefits
- transferability
Corporation Cons
-Higher costs
-greater regulation
-possible loss of control
- potential bureaucracy
Joint venture
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
joint venture can be a
Partnership
The rules of a partnership apply
equity joint venture
Parties incorporate a separate corporation for the project and each holds shares in the corporation.
- the rules of incorporation apply
Strategic alliance
- 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.
