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Lecture 5

LAW 122 Lecture 5: Basic forms of business organizations

Law and Business
Course Code
LAW 122
Peter Wilson

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Oct. 23, 2019
Week 8 LAW122 Basic forms of business organizations (chapter 21)
Types of business
- Sole proprietorship
- General partnership
- Limited partnership
- Limited liability partnership
- Corporation
Sole proprietorship
- Simplest form of business organization
- Comes into existence when a person carries on business on their own without adopting
any other form of business organization (such as corp.)
o Might have to get licence in certain cases (ex. restaurant)
- Sole proprietor can enter into contract to employ someone else, but you still remain the
sole owner of the business and only person responsible for its obligations
- No separate legal structure or separation between owner and business on any level
o Owner is exclusively and personally responsible for conducting business
o Owner is exclusively and personally liable for all torts and contractual or other
breaches in regard to business
o Owner is exclusively and personally liable for all debts of business
o Income or loss from business is included directly in owner’s income or loss
- Advantages:
o Simple and easy to set up
o Easy and least costly to dissolve (sole proprietor simply stops carrying on
o Least costly to establish and operate
- Disadvantages:
o Unrestricted and unlimited personal liability of owner (ex. if worker or 3rd party
sues you, liability would be yours alone and no one else’s)
o Barrier to raising capital
Only method of financing is to borrow directly since it’s not possible to
divide up ownership

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Oct. 23, 2019
Limited financing and unlimited personal liability meaning sole
proprietorships are only used for relatively small businesses
- Legal requirements
o Provincial registration of business’s name if it is other than owner’s name (ex.
Amman Malik would not have to register his business if he just used his name but
if he wanted his business to be named “Malik’s gardening services” he would
have to register the business)
o Business licence necessary for some types of activities (ex. car dealerships, taxi
drivers, restaurants, etc.)
- Common law organization later codified in provincial partnership statutes
o Partnerships act
o Limited partnership acts
- Partnership types
o General partnerships
o Limited partnerships
o Limited liability partnerships
- Legal characteristics
o 2 or more people carry on a business with the view to profit (objective has to be to
make money)
o It is not a legal entity separate from the partners
o Subject to any contrary agreement between the partners, if one partner leaves
partnership it is terminated
o Often called “firm”
o For income tax purposes, income or loss of partner is calculated at firm level and
then allocated to each partner for inclusion in their income according to their
entitlement to the profits or loses of the partnership
General partnerships
- Characteristics
o Does not require any formalities or written partnership agreements (although
name must be registered to obtain business licence)

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Oct. 23, 2019
o Partnership is not legally separate from partners (similar to sole proprietorship)
Can do some things in name of partnership such as hold title to land or be
Partners cannot be employed by partnership
All benefits and liabilities of partnership accrue (accumulate or receive)
directly to partners
All partners (even those who didn’t consent to particular obligation) are
personally liable for all obligations of business joint and several and
personal liability)
- Indications of general partnership (factors courts consider and look at to determine
whether partnership exists)
o Shared profit and loss
o Joint ownership of property, contribution of capital, involvement in business and
access to relevant business info
o Represent each other as partners to others
o Use partnership name for business purposes
o Hire staff for partnership
o Establish partnership business address
- Partnership property
o Partnership owns all property purchased with partnership funds and property
donated to partnership by partner
o Property must be used for partnership purposes
o Not transferable to one of the partners or another person or returnable to donor
without approval of all partners
Risk and liability in general partnerships
- How partnership liabilities arise
o Each partner acting in normal course of partnership business binds partnership
under concept of joint and several liability (concept of mutual agency)
o Under concept, all partners are personally liable (to unlimited extent) for actions
of other partners, including tortious and breach of contract liability
- Managing risk that you will be liable as partner
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