LAW 122 Lecture 6: Business Organizations
15 Dec 2016
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Chapter 12: Business Organizations
- There are 4 different types of business organizations. This chapter will address the
questions:
- Are you in a business organization? What kind of business organization are you in?
Sole Proprietorships
- A Sole proprietorship comes into existence when a person carries on business ON THEIR
OWN, without adopting any other form of business organization (such as corporation)
- EX→ as a sole proprietor, you could enter a contract to employ someone else to cut you
neighbors grass, but you remain the sole owner of a business and the only person
responsible for its obligations
- RISKS AS A SOLE PROPRIETOR (OWNER)
o Easy to dissolve
o Owner is exclusively respsonsible for all torts committed personally in
connection with business. (and vicariously liable for the employees torts)
o Can only raise money by personal borrowing
o As a business grows, these problems continue to grow.
o UNLIMITED PERSONAL LIABILITY
- ADVANTAGES
o Simple to start and administer
o Possible tax advantages
- A sole proprietor is best suited for a small business
- LEGAL REQUIREMENTS
o No formal registration as a sole proprietorship is required
o They MUST comply with the general requirements imposed on all businesses
▪ May eed to register a doig usiess as ae
▪ May need to aquire a particular license (EX hot dog vendor permit or
spectrum license)
(General) Partnership
- When two or more parties, carry on a business with a view to profit.
- A person can become part of a partnership without realizing it as there are NO FORMAL
REQUIREMETNS necessary for this business organization.
- Traits of a general partnership:
o Each partner an agent for the partnership
o Each parter is liable for the contracts and torst of the partnership, irrespective if
he/she
▪ Signed the contract
▪ Committed the injury
- Parter CANNOT be an employee.
find more resources at oneclass.com
find more resources at oneclass.com
- Factors indicating a GENERAL PARTNERSHIP
o Sharing profits (not just revenues) or losses
o Jointly owning property or jointly contributing CAPITAL
o Involvement in the business – especially in management
o Joint authority/bank accounts
o Equal access to business information
o Engaging in ongoing activity rather than one project
- Income to partnership is person income to partners
- Ontario Partnership Act—provides default rules, which can be supplemented or
modified by partnership agreement
How to END a general partnership
- Unless the partners agree otherwide, the default termination rules are:
o Any partner may terminate partnership on notice
o Termination on DEATH or INSOLVENCY of partner
- RISK MANAGEMENT STRATEGIES
o Be careful to avoid creating the impression that you are in a partnership
o Get compensated for the risk that you may be held to be a partner
o If you wish to have a partnership, draft a contract/partnership agreement and
have a lawyer review the contract.
- How to manage liability risk if you are a partner
o Each partner owes a fiduciary duty to the other, requiring a partner to act
honestly and in good faith with a view to the best interests of the partnership
o Enter into a limited liability partnership
Limited Partnership (LP)
- A form of partnership where the liability of at least ONE parter is limited to that partners
investment in the partnership.
- A limited Partner MUST BE REGISTERED
- A limited partner must have at least one general partner who is not limited
- LP’s hae ery liited rights to aage the partership
- LP’s CAN e eployees
Limited Liability partnership
- In a limited liability partnership, individual partners are not personably liable for the
professional negligence of their partners and some other obligations if certain
requirements are met
- Most large firms have now become limited liability partnerships
Joint Venture
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
There are 4 different types of business organizations. A sole proprietorship comes into existence when a person carries on business on their. Own, without adopting any other form of business organization (such as corporation) Ex as a sole proprietor, you could enter a contract to employ someone else to cut you neighbors grass, but you remain the sole owner of a business and the only person responsible for its obligations. Advantages: simple to start and administer, possible tax advantages. A sole proprietor is best suited for a small business. When two or more parties, carry on a business with a view to profit. A person can become part of a partnership without realizing it as there are no formal. Traits of a general partnership: each partner an agent for the partnership, each parter is liable for the contracts and torst of the partnership, irrespective if he/she, signed the contract, committed the injury.
