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Canada (492,736)
MGSC30H3 (54)
Jeff Rybak (18)
Lecture 2

MGSC30H3 Lecture 2: Partnerships, Proprietorships and Trusts

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University of Toronto Scarborough
Management (MGS)
Jeff Rybak

May 9, 2017 – Lecture 2: Partnerships, Proprietorships and Trusts • Assignment 2: partnerships only o Case hint: does a partnership exist • Sole Proprietorship o Any individual carrying on business o Simple and direct o Register sole proprietor if you register in any other name other than your own o Practical limits to size and growth o Often a starting place for bigger things o Licensing is required to carry on business in another name ▪ Also for many regulated activities ▪ Fines if you don’t register the business o Your business so you are liable for the business and all the consequences o All the income is taxable o Easiest way to operate a business o Even if you don’t register it, it still belongs to someone and that person is liable o Unlimited liability for sole proprietorships ▪ Take everything that is needed to pay the liability ▪ All assets available to satisfy debt • Partnership o It’s a relationship o Between persons (two or more) o Carrying on a business in common o With a view to profit ▪ Need to be trying to make a profit in order for it to be a partnership ▪ Not profiting=not a partnership o Not otherwise incorporated • Partnership: Relationships that aren’t o Common ownership or tenancy ▪ Shared ownership of real property alone does not create partnership, even if it generates income ▪ Property law • Real property: land • Anything movable isn’t real property ▪ Not a partnership if you only own property and generate revenue on that o Only sharing costs from some enterprise ▪ Partnership implies both shared shouldering of costs and also a share of net profits ▪ Just because you share a space doesn’t mean it’s a partnership ▪ Have to share profit to be considered a partnership • Partnership: Liability o Partners are severally and jointly liable for ▪ Debts and contracts ▪ Tort liability ▪ Suit against the partnership o Unlimited liability o All partners have unlimited liability o High-trust relationship: don’t get into a partnership if you don’t trust them • Partnership: It’s a relationship o Based on the real relationship between parties, and need not be written o A personal relationship founded on mutual trust o Includes agency on behalf of other partners o Extends beyond shared interests in real property o Governed specially by the Partnership Act o Is you, can’t separate you from the business • Partnership: Presumption and Exceptions o Share of profits is presumptively evidence of partnership o Subject to expectation ▪ Payment by installment (out of profit) ▪ Remuneration by profit-share ▪ Payments to family/ inheritors by annuity ▪ Loan payments or investments • Until you pay off your loan: not a share of profit ▪ Sale of goodwill (passing on the business) o Partnership can exist even if you didn’t intend for it to o Example ▪ You make an app and get a friend to sell it for 20% of the selling price ▪ Created a partnership without the intention of a partnership ▪ Property of both people now, not just the person that made the app o How to figure out if someone is a profit ▪ Are they entitled to a percentage of a billion dollars if that’s how much your business is worth o Employee profit share not really a profit share ▪ Just bonuses indexed to profit • Partnership: Independent Nature o Business can sue or be sued in own name ▪ Name is short hand for the people, so it’s the people being sued or suing o Can own property and assets ▪ Share in a partnership is not an asset o Is not own by individual partners, in whole or in part ▪ Even though the partnership is not an asset in the traditional sense, some of each partner’s net worth is tied up in the partnership o Partners can leave and join ▪ Subject to rules • Partnership: Claim on Assets o Only worry when stuff goes really badly ▪ When partnership runs out of money o First claim goes to creditors of partnership ▪ Creditors owed money by partnership get paid first out of partnership funds o Second claim goes to creditors of individual partners ▪ Against only that partners’ assets in the partnership ▪ Whatever is left belongs to individual partners ▪ Can’t get hold of other partners share ▪ Doesn’t make the person an actual partner, they are not entitled to assets o Only after partnership creditors are paid can value be determined and allocated o Remainder belongs to individual partners • Partnership: Apparent Partners o If someone holds themselves out as a partner, or allows themselves to be held out as a partner, someone may do business with the partnership due to reliance on that belief ▪ They can be liable to that one transaction as they are a partner ▪ o If someone relies reasonably on that belief, then the apparent partner may be liable for purposes of that debt as if they were a partner o Note this does not actually make them a partner, just gives them equivalent liability o Publication and notice are intended to avoid this problem o Assess partnership loan as it was an individual loan ▪ Credit worthiness of the partners ▪ Who are the partners
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