Class Notes (835,926)
Canada (509,504)
LAW 603 (121)
Gil Lan (28)


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Law and Business
LAW 603
Gil Lan

CHAPTER 21 BASIC FORMS OF BUSINESS ORGANIZATIONS SOLE PRORPIETERSHIP Sole Proprietorship- exists when a person carries on business on their own without adopting any other form of business organization. *self employed and sole proprietor are not the same because sole proprietor cannot enter into contract with self. • As a sole proprietor you could enter into a contract to employ someone else but you remain sole owner • You cannot be an employee of the business as you cant contract yourself • Is responsible for performing all contracts entered in the course of business • Responsible for all torts committed personally in connection to the business • For income tax purposes the income or loss from a sole proprietorship is included with income or loss from other sources in calculating the personal tax liability • Simple and easy to set up, and easy to dissolve Unlimited personal liability- means that third parties may take all of the sole proprietor’s personal assets to satisfy the business obligations • Very limited financial options to raise capital for start-up costs LEGALREQUIREMENTS FOR SOLE PROPRITERSHIP Business licence- is government permission to operate a certain kind of business • Name must be registered if it is something other than own name GENERALPARTNERSHIPS General partnership- is a form of business organization that comes into existence when 2 or persons carry on business together with a view to profit Characteristics of a general partnership • Apartner cannot be employed by the partnership • All benefits accrue directly to partners • All partners even those who did not consent are personally liable for all of the obligations of the business Partnership agreement- is a contract between partners regarding the operation of the partnership • Legal issues are usually resolved on the basis of both legislation and the partnership agreement • Apartnership does not simply exist with parties sharing profits here are some examples o Aloan is to be repaid out of profits of the borrowers business o An employee’s remuneration varies with the employer’s profits such as in a profit sharing agreement o The purchaser of the business agrees to pay some of the business profits to the seller as part of the purchase price o No partnership if 2 competitors simply co-operate on an isolated transaction o People are merely passive investors Concept summary 21.1 pg 524 How partnership liabilities arise • Provincial partnership statues determine when a partnership incurs liability • Each partner is an agent of the partnership • Exception exists if the partner did not have the authority to act in a certain way • Partners also liable for torts such as negligence that their fellow partner can commit Managing the risk that a business relationship will be found to be a partnership • Partners have unlimited personal liability for obligations of the firm • Examine a proposed relationship carefully to determine if you are entering a partnership o Do o Insist that the contract governing the relationship state that it is not a partnership o Negotiate to restructure the business organization so that it is not a partnership o Insist upon compensation to reflect any residual risk that you will be found ot be a partner o Don’t enter a relationship without the advice of a lawyer Managing the liability risk if you are a partner Fiduciary Duty- requires a partner to act honestly and in good faith with a view to the best interest of the partnership • Partnership agreement • Each partnership authority can be limited and subject to formal control and monitoring mechanisms • Right to indemnification- occurs when a liability is created in breach of the partnership agreement the offending partner must compensate the others for any amount they must pay to a 3 party Limited liability partnership – individual partners are not personally liable for the professional negligence of their partners and some other obligations if certain requirements are met • Most law firms and accosting firms are now LLP • Is the same as a general partnership in all other aspects Managing Liability Risk when you are not a partner Holding out- occurs when you represent yourself as a partner or allow someone else to do so • Generally not liable for partnership liabilities that arose before you joined • May be liable for partnership obligation if you holdout • Issue of holding out usually occurs when a partner leaves a firm, clients should be given actual notice of your departure to get rid of liability • Can allow firm to use your name if they agree to indemnify you of all liability Internal organization of the partnership Default rules- are a kind of st
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