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Lecture 5

LAW 122 Lecture Notes - Lecture 5: Professional Negligence In English Law, Fiduciary, Limited Liability Partnership


Department
Law and Business
Course Code
LAW 122
Professor
Theresa Miedema
Lecture
5

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BUSINESS ORGANIZATION Chapter 21
SOLE PROPRIETORSHIP
Comes into existence when a person begins to conduct business on his or her own, without adopting
any other form of business organization (E.g. start cutting someone’s lawn for money)
Liability Regime
1. Proprietor entitled to all income
2. Proprietor liable for all obligations
3. Proprietor’s assets available for business debts
4. Business income (loss) on personal income
5. Proprietor cannot be employee of business
Unlimited Personal Liability
Third parties may take all the sole proprietor's personal assets (not just those of the business) to
satisfy the business’s obligations
Sources of Liability
The proprietor is exclusively responsible for:
1. Performing all contracts entered into in the course of the business;
2. All torts committed personally in connection with the business
The proprietor is also vicariously liable for all torts committed by employees in the course of their
employment.
Method of Financing
The only method of financing is for the sole proprietor to borrow money directly
Risk Management tools
Legal tools: insurance & incorporation
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.
e.g. may need to register a “doing business as” (DBA) name
e.g. May need to acquire a particular license (hot dog vendor permit or spectrum license)
Advantages
simple to start; simple to administer
Disadvantages
Unlimited personal liability
Can only raise money by personal borrowing
As business grows, these problems continue to grow
PARTNERSHIP/general partnership
The general partnership is a form of business organization
that comes into existence when:
1. Two or more people carry on business together
2. With a view to profit
No separation between partner and partnership
A partner cannot be employed by partnership;
All benefits of partnership accrue to partners;
Each partner is personally liable for all obligations
of the partnership-even if the partner did not
consent to a particular obligation
Partners have unlimited personal liability
Conclusion:
Sole Proprietor is best suited for
SMALL BUSINESSES
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 profit, without the need for any
further formality.
This means that a person can become part
of a partnership without necessarily
realizing it!
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find more resources at oneclass.com
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