LAW 601 Lecture Notes - Lecture 1: Sole Proprietorship, General Partnership, Professional Negligence In English Law
19 Feb 2017
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LAW 603 – Chapter 21
Ch. 21 – Basic Forms of Business Organizations
1. Sole Proprietorships
2. General Partnerships
3. Limited Partnerships
• Different than LLP, where it is based on professional negligence. When one person messes up,
he/she is only responsible.
4. Corporations
Sole Proprietorship
• An individual carries on business without adopting any other form of bus. org.
• Created automatically
• Individual & the business are one & the same
• Can hire employees (but not him/herself)
• SP gets:
1. All benefits; &
2. All risks (e.g. debts, torts & contracts)
Advantages
1. Simple
2. Easy to set up
3. Easy to dissolve
Disadvantages
1. Unlimited Personal Liability
• So, try to limit liability through
insurance & contracts
2. Limited Financing Options
• SP must borrow $ personally
Legal Requirements
• Register bus. name (Business Name Act (Ont.) if different than idiidual’s ae e.g. Joe’s Ladsapig
• Business license (Prov. or Municipal) - (e.g. restaurants, taxis; real estate agents)
General Partnership
• When 2 or more persons1 carry on business together2 with a view to a profit3
• GP is created automatically (facts & substance fall within definition of GP )
• Legal Requirements
• Registe GP’s ae
• Business license
Characteristics of GP
1. GP is ot legall sepaate fo pates p
• partner cannot be an employee of GP
• Exception – GP can hold title to land & sue in name of GP
2. All Benefits flow through to partners
3. Each partner is fully & personally liable for every obligation of GP
4. All GP’s assets & eah pate’s pesoal assets ae eposed
5. Income/loss allocated to each partner
6. Ioe ta alulated at pate’s leel
GP’s Popet
• Must be used exclusively for the GP
• Pate’s pesoal use is pohiited ithout oset of all pates
find more resources at oneclass.com
find more resources at oneclass.com
2
Legislation and Partnership Agreements
• Partnership Act (Ont.) – default rules for GP:
▪ Each partner:
1) Shares equally in capital, profits & losses
2) Gets no interest on capital contributed
3) Entitled to be indemnified for payments they make
4) Has right to participate in management
5) Has access to books
▪ Ordinary Matters – ajoit of p’s deide
▪ Extraordinary Matters (i.e. new p, expulsion of p, change in nature of business, or change in
statutory default rules) – All p’s ust agee
• Partnership Agreements – you can change the default rules
▪ Key Issues to Address in a Partnership Agreement
1) Name – hat is the ae? ho’s etitled to the ae if pateship eakup
2) Membership - Admission & Expulsion of Partners, Process of admission + expulsion
3) Capitalization – financial contribution of partners, now and in the future
4) Profits – How will they be shared? On what basis are they paid?
5) Management – How will decisions be made? What monitoring and control procedures
will be put in place to guard against unauthorized liability and negligence by partners?
How will disputes be resolved?
6) Dissolution – what limits placed on the right of dissolution? Will death, insolvency or
resignation of a partner terminate the partnership for all partners?
IF IT’“ UNCLEAR WHETHER GP I“ CREATED THE COURT WILL LOOK AT FACTOR“
1. Carrying on business together (suggests enduring relationship)
• Repaying loan out of profits is not a business; an employee profit sharing is not a
business.; paying a purchase price out of earnings is not a business.
2. Sharing of profits (very important factor)
• But you may share in profits without being in business together e.g. an employee on a
profit sharing plan)
3. Sharing responsibility for losses (very important factor)
4. Jointly owning property
• but passive investors may not be in GP unless investors are actively managing & sharing
profits
5. Participating in management
• e.g. decision making; signing authority; access to info.)
6. Holding oneself out as a partner, or allowing others to do so
7. You ae is i the GP’s ae
8. A Contract states an intention to form a GP
9. Filing government docs (e.g. bus. name regulation)
10. Using GP name in advertising
11. Separate address for GP
12. Contribution of capital ($, property, or services) by a number of parties
You Be the Judge 21.1 (p.540)
• Groscki & Durocher (2001) O.C.A.
- Chartered Accountants
- Goski poided aoutig seies, Duohe ae i as a Idepedet Cotato
- Soon, Durocher took on more responsibilities, but was getting paid $20/hour plus $913
- Eventually name of the usiess tued to Goski ad Duohe.
• What factors support the existence of a GP?
- Name in the GP
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
21 basic forms of business organizations: sole proprietorships, general partnerships, limited partnerships, different than llp, where it is based on professional negligence. When one person messes up, he/she is only responsible: corporations. An individual carries on business without adopting any other form of bus. org. Individual & the business are one & the same. Sp gets: all benefits; , all risks (e. g. debts, torts & contracts) Disadvantages: simple, easy to set up, easy to dissolve. So, try to limit liability through insurance & contracts: limited financing options. Register bus. name (business name act (ont. ) if different than i(cid:374)di(cid:448)idual"s (cid:374)a(cid:373)e (cid:894)e. g. (cid:862)joe"s la(cid:374)ds(cid:272)api(cid:374)g(cid:863)(cid:895) Business license (prov. or municipal) - (e. g. restaurants, taxis; real estate agents) General partnership: when 2 or more persons1 carry on business together2 with a view to a profit3, gp is created automatically (facts & substance fall within definition of gp )
