LAW 122 Lecture Notes - Lecture 6: Professional Negligence In English Law, Search Report, General Partnership

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4 Feb 2016
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Lecture 6 – Chapter 21
Business Organization
Types of Business Organizations:
Sole proprietorships
General Partnerships
Limited Partnerships
Corporations
Liability and bene#ts of entrepreneurs and other stakeholders di%er
depending on type used
Sole Proprietorships
Arises once person begins to conduct business
oE.g. start cutting someone’s lawn for money
No separation between business and proprietor (owner):
Proprietor entitled to all income
Proprietor liable for all obligations
Proprietor’s assets available for business debts
Business income (loss ) on personal income
Proprietor cannot be employee of business
Advantages and Disadvantages
Advantage:
Simple to start; simple to administer
Possible tax advantages
Disadvantages
Unlimited personal liability
Can only raise money by personal borrowing
As business grows, these problems continue to grow
Conclusion: A Sole Proprietor is best suited for small businesses
Legal Requirements
No formal registration as a “sole proprietorship” is required (Compare this to
incorporation, where formal steps are required)
But sole proprietors must comply with the general requirements imposed on
all businesses.
oE.g. may need to register a “doing business as” (DBA) name
oE.g. May need to acquire a particular license, e.g., hot dog vendor
permit or spectrum license
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Partnerships: Typology
The main types of partnerships
Partnership (sometimes called “general partnership”
Limited liability partnership (or “LLP”)
Limited Partnership
General Partnerships aka Partnerships: Exist when two or more people carry on
business together with a view to pro#t
CAUTION
There are no formal requirements for creating a partnership. The creation of a
partnership is automatic: a partnership comes into existence in law when
two or more people carry on business together with a view to prot,
without the need for any further formality
This means that a person can become part of a partnership without
necessarily realizing it!
Factors Indicating Partnerships
Sharing pro#ts (not just revenues) or losses
Jointly owning property or jointly contributing capital
Involvement in business – especially management
Join authority for contracts an bank accounts
Equal access to business information
Holding each other out as partners or acquiescing
Engaging in ongoing activity rather than one project
Consider the risks of unintended partnerships
Partnership Characteristics
No separation between partner and partnership
Partners have unlimited personal liability
Income to partnership is personal income to partners
Ontario Partnership Act
oProvides default rules, which can be supplemented or modi#ed by
partnership agreement
Each partner can commit the partnership to obligations
Ending a Partnership
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: Front End Strategies
Be careful to avoid creating the impression that you are in a partnership
Get compensated for the risk that you may be held to be a partner
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