COMMERCE 1E03 Chapter Notes - Chapter 6: Limited Liability Partnership, Franchise Agreement, Limited Partnership
26 Apr 2018
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Terminology:
Sole proprietorship: A business that is owned, and usually managed, by one person.!
Partnership: A legal form of business with two or more parties.!
Corporation: A legal entity with authority to act and have liability separate from its owners.!
Unlimited liability: The responsibility of business owners for all of the debts of the business.!
General partnership: A partnership in which all owners share in operating the business and in
assuming liability for the business's debts.!
Limited partnership: A partnership with one or more general partners and one or more limited
partners.!
General partner: An owner (partner) who has unlimited liability and is active in managing the
firm.!
Limited partner: An owner (partner) who invests money in the business but does not have any
management responsibility or liability for losses beyond the investment.!
Limited liability: The responsibility of a business's owners for losses only up to the amount
they invest; limited partners and shareholders have limited liability.!
Limited liability partnership (LLP): A partnership that limits partners’ risk of losing their
personal assets to only their own acts and omissions and to the acts and omissions of people
under their supervision.!
Partnership agreement: Legal document that specifies the rights and responsibilities of each
partner!
Public corporation: Corporation that has the right to issue shares to the public, so its shares
may be listed on a stock exchange.!
Private corporation: Corporation that is usually controlled by a small number of shareholders
and its shares are not listed on a stock exchange.!
Corporate governance: The process and policies that determine how an organization
interacts with its stake-holders, both internal and external.!
Articles of incorporation: A legal authorization from the federal or provincial/territorial
government for a company to use the corporate format.!
Franchise agreement: An arrangement whereby someone with a good idea for a business
sells the rights to use the business name and sell its goods and services in a given territory.!
Franchisor: A company that develops a product concept and sells others the rights to make
and sell the products.!
Franchise: The right to use a specific business's name and sell its goods or services in a given
territory.!
Franchisee: A person who buys a franchise.!
Co-operative (co-op): An organization owned and controlled by people—producers,
consumers, or workers—with similar needs who pool their resources for mutual gain.!
NOTE:
Starting a Small Business
The three major forms of business ownership:!
1. Sole proprietorship (most common)!
2. Partnerships!
3. Corporations!
Sole Proprietorships
Advantages:!
•Ease of starting and ending the business!
•Being your own boss!
•Pride of ownership!
•Reputation of company profit!
•No special taxes!
•Less regulations!
Disadvantages:!
•Unlimited liability !
•Limited financial resources!
•Management difficulties !
•Overwhelming time commitment !
•Few fringe benefits!
•Limited growth!
•Limited lifespan!
•Possibly pay higher taxes!
Partnerships
Advantages:!
•More financial resources!
•Shared management and pooled/complementary skills and knowledge!
•Longer survival !
•Shared risk!
•No special taxes!
•Less regulations !
Disadvantages:!
•Unlimited liability !
•Division of profits!
•Disagreements among partners!
•Difficulty of termination !
•Possibly pay higher taxes!
Corporations
•The corporation’s owners (called shareholders/stockholders, as they hold shares/stock of
ownership in the company) are not liable for the debts or any other problems of the
corporation beyond the money they invest. !
•Corporate shareholders do not have to worry about losing their homes, cars, and other
personal property if the business cannot pay its bills—a very significant benefit. !
•A corporation not only limits the liability of owners, but it also enables many people to share
in the ownership (and profits) of a business without working there or having other
commitments to it. !
