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Week 7 - Chapter 16 - Forms of Business.doc

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Administrative Studies
ADMS 2610
William Pomerantz

WEEK 7 Chapter 16 Sole Proprietorship and Partnership 3 ways to protect personal assets - incorporate business - If this is done and business defaults, we wont lose house or stocks - Put personal assets in another persons name (TRANSFERRINGASSETS) - 2 types of assets - Family home, matrimonial home - Putting it in your wife's name - Can’t sell house without having your spouses consent, if we get di- vorced broken into 50/50 - Problem with putting other assets in someone else's name is they can just take the assets - when do we transfer assets? - Fraudulent conveyance - can’t transfer assets because were getting sued - Do it when we first start business - Get insurance - Will help in Tort but not Contract Business Forms - Sole Proprietorship - Partnership - Corporation Sole Proprietorship - most simple form of running a business - Sole proprietor works for himself or herself - Register if operate under a different name (Business NamesAct) BENEFITS - WE are our own boss - All the profit is our own! - Can have tax write-offs To set up - get licenses - Have to comply with employment standards lmgistlations Hard to get money - going in alone - If were young no credit history Hard to transfer sole-proprietorship Characteristics Can have - Unlimited liability - `if the business gets sued everything is up for grabs Partnership - Definition: Relationship “...between persons carrying on a business in common with a view to profit” (PartnershipsAct) - Many suggest that a partnership is a relationship very similar to marriage (e.g. Based on trust) - What are the advantages of setting up a partnership? Disadvantages? (e.g., disagreements, dishon- esty, incompetence, potential liability) UNLIMITED LIABILITY Advantages - synergy between partners - helping company grow - Easier to get credit - Tax Benefit Existence of a Partnership - Factors that establish a partnership (even if no express agreement): - Share profits (rebuttable presumption, PartnershipAct) - Contribution of capital (e.g. Money, supplies, etc.) - Active participation - Call it a partnership - Conduct suggesting one is a partner (e.g., which can lead to estoppel) - If we hold ourself as being a partner we can be a partner Can be in a partnership without even knowing it!!!! Factors that do not establish a partnership: - joint ownership of property - Sharing of gross fees/returns (e.g.As opposed to sharing profits) - Contract for remuneration (e.g. Bonus or commission based on business performance) - Repayment of a debt/loan Nature of a Partnership - Distinguish (pPartnership vs. Co-Ownership) - Partnership - Contractual - Founded on mutual trust - Partner agent of other partners and the partnership - Partners share in partnership property is always personality (personal not real property) - If were a partner and the partnership owns property we don’t own it be- cause it is not ours in any shape or form, can’t do anything with it - Subject to PartnershipAct - Co-Ownership - Arises in several ways - Freely alienable without consent of other co-owner - Not an agent of other co-owners - Co-owners can own any type of property You decide with another student to organize dance parties downtown over the summer months. You will both share in the profits, each contribute towards the security de- posits, and each make important decisions regarding the parties.Are you both part- ners? - WOULD ALL BE PARTNERS Liability of Partnership - Every partner is an agent of the firm, can bind firm in contract (UNLESS party knew or should have known partner had not authority to do so), e.g. Partner had apparent “authority” - Every partner liable for debts incurred by partnership while person a partner - Every partner liable for tort committed by employees or other partners in ordinary course of part- nership business - NEW partner not liable for existing debts UNLESS agrees to assume them - RETIRING partner remains liable for debts UNLESS notice given (e.g. In Ontario Gazette) - can’t be stuck being liable for ever - Need to do a couple of things - Call all clients were dealing with and tell them were retiring - Do a General notice in Ontario Gazette to let province know were retiring - Do a change of notice with government saying were retiring by this date (ABC FIRM) PartnerA Partner B Partner C For a clothing store - Partner c goes overseas, deal with supplier, enter into contract or buy 90grand of coat - Agreement between 3 partners, no contract can be entered into over 50 grand without all 3 agreeing - C enters into contract, Aand B do not agree - Acalls the supplier and tells the supplier there was an agreement that needed to be met be- fore entering into a contract - says they have no money and are canceling - S says they are delivering either way or else they are suing Is the Contract binding on the firm? Or is it broken by C? - Rule - every partner is an agent of the firm and can bind the partners into contract - Every partner is agent of each other Who gets Sued? - Firm gets sued! If firm is sued -AB and C all get sued Firm has no assets Judgement against the partners - 30, 30, 30 - Can be just 90 Say onlyAhas money - Ahas to pay it all!!!!! Indoor Management Rule - the outside world doesn’t know anything about the internal workings of the firms and therefore they dont know about it and don;t have to deal with it - If the supplier knows about a deal in a contract - Have to get all people in the partnership to agree ParentAuthority - one partner doesn’t have authority to enter but the point of view of the other company seems like its legal Joint Liability - if 3 partners but only one has money to pay - The one partner has to pay for it - Every partner is jointly liable for every penny The other student enters into a lease agreement with the owner of a building. You had previ- ously agreed that both of you must agree before signing a lease. Are you now bound to the lease agreement? - Yes - indoor management rule (landlord doesn’t know anything about the agreement) Can you be personally sued if you break the lease? - Yes Could you lose your home, car and other personal assets as a result of being sued by the owner? - YES What if you retired from the partnership before the lease was entered into? - Depends if we let the landlord know with a notice, ontario gazette, and notify gov- ernment Partnership: Registration andAgreement - REgistration of Partnerships - If not registered the partnership cannot commence or defend legal proceedings - The PartnershipAgreement - Why is is so important to have a partnership agreement? (e.g. Profit sharing, dissolution, ‘shot-gun clauses’, etc) - Shot-gun clause - HaveAand
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