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CHAPTER 7 methods of carrying on business.docx

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Business Administration
BUS 393
Robert Adamson

CHAPTER7: Methods Of Carrying On Business SOLE PROPRIETOR - Advantages o Record/reporting burder = lighter o Fewer government regulations o All profit = theirs - Disadvantage0073 o UNLIMITED LIABILITY  Any debts of business = sole proprietor  Personal assets = vulnerable o Vicarious liability for employees o Investors become creditors, not participants (sole proprietor still controls) o Income tax (personal income) PARTNERSHIP - Relation between persons carrying on a business in common with a view to profit - No formal process - CREATION o Contract stating nature of rights/obligations o PARTNERSHIP ACT  Governs relations between partners where there’s no contract - Unlimited Liability o Each partner responsible o Responsible for other partners  No decision can be made without partners agreement  No salary – share profits equally  Fiduciary duty to other partners - Partnership agreements o Create diff classes of partners  E.g. senior partners o Taxes @ personal rate - DISSOLUTION o Death/bankruptcy/insolvency of partner  Provision of 2+ partners, they won’t dissolve o Upon notice o Project completed o Illegal/court orders o  assets and personal to pay off liabilities LIMITED LIABILITY PARTNERS - Limited liability: investor’s risk of losing only amount invested - Given if: o Don’t take part in management o There is 1 general partner o Limited partnership is registered o Name of limited partner not a firm name - LLP: o Must be registered and have LLP @ end of name o Must be permitted by professional organization & have insurance o *** protects partner from liability for negligent acts of other partners CORPORATIONS - Corporation: legal person, separate of the shareholders - CREATION: o 1. Registration method o 2. Memorandum of association & articles of association o 3. Letters patent method - STRUCTURE o Broadly held  Aka – reporting, public, offering corporations  More regulations  Controls must be met  Shareholder’s rights, reporting req o Closely held  Aka – private  Incorporated partnership, few shareholders,  Less strict rules - SHAREHOLDERS o Tyranny of the majority  Majority shareholder – ultimate control o Proxy: shareholders don’t attend meeting
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