LAW 122 Lecture Notes - Lecture 5: Golf Cart, Canada Business Corporations Act, Professional Negligence In English Law
5 Jun 2018
School
Department
Course
Professor
Business Organization
Sole Proprietorship
• Arises once person begins to conduct business
• No separation between business and owner
o Owner entitled to all income
o Owner is liable for all obligations
o Owner’s assets available for business debts
o Business income on personal income
o Owner cannot be employee of business
• Conclusion: Sole proprietorship is best suited for
small businesses
• Legal requirements
o No formal registration is required
o Must comply with the general requirements imposed on all
businesses
▪ May need to register a doing business as name
▪ May need to acquire a particular licence
General Partnerships
• Exists when two or more people carry on business together with a view to
profit
o Not a casual, one-off transaction
• There are no formal requirements for creating a partnership
o Creation is automatic: a partnership comes into existence in law when
two or more people carry on business together, without the need for
any further formality
o A person can become part of a partnership without necessarily
realizing
• Factors Indicating Partnerships
o Sharing profits or losses
o Jointly owning property or jointly contributing capital
o Involvement in business (especially management)
o Join authority for contracts and bank accounts
o Equal access to business information
o Holding each other out as partners or acquiescing
o Engaging in ongoing activity rather than one project
o Consider the risks of unintended partnership
• Partnership Characteristics
o No separation between partner and partnership
o Partners have unlimited personal liability
o Income to partnership is personal income to partners
o Ontario Partnership Act
▪ Provides default rules, which can be supplemented or modified
by partnership agreement
Advantages
• Simple to start and
administer
• Possible tax advantages
Disadvantages
• Unlimited personal liability
• Can only raise money by
personal borrowing
• As business grows, these
problems continue to grow
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o Each partner can commit the partnership to obligations
• Ending a Partnership
o Unless the partners agree otherwise, the default termination rules
are:
▪ Any partner may terminate partnership on notice
▪ Termination on death or insolvency of partner
• Risk Management
o Front end strategies
▪ Be careful to avoid creating the impression that you’re in a
partnership
▪ Get compensated for the risk that you may be held to be a
partner
▪ If you wish to have a partnership, draft a contract and have a
lawyer review it
o Partnership structures
▪ Enter into partnership agreements that protect your interests
• ie ensure that the agreement provides for a right to
indemnification
▪ Consider creating a limited liability partnership or a limited
partnership
▪ Consider incorporation as an alternative to a partnership
o Other legal tools
▪ Qualifying the scope of liability
▪ Fiduciary duty
• Partners must act honestly and with a view to the best
interests of the partnership
Limited Liability Partnership vs Limited Partnership
• Limited Liability Partnership (LLPs)
o Aimed at certain professions that cannot carry on business as
corporations
o Partner’s risk of liability for professional negligence of fellow partner
is essentially limited to the non-negligent partner’s investment in the
partnership
• Limited Partnership (LPs)
o A form of partnership where the liability of at least one partner is
limited to that partner’s investment in the partnership
▪ LPs must be registered
o An LP must have at least one general partner whose liability is not
limited
o Limited partners have very limited rights to manage the partnership
Corporations
• A legal person, with a separate legal existence from its directors,
shareholders, and officers
find more resources at oneclass.com
find more resources at oneclass.com
