ADMS 2610 Study Guide - Midterm Guide: Design Patent, Consumer Protection, Substance Abuse
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Chapter 16: Law of Sole Proprietorship and Partnership
Sole Proprietorship: A business where the sole owner is responsible for the management and
the debts of the business.
Partnership: A legal relationship between two or more persons for the purpose of carrying on
business with a view to profit.
•A partnership is different from co-ownership of property.
•With more owners to share the risk of borrowing, banks are more willing to extend credit
to a partnership.
Nature of a Partnership:
•Founded on mutual trust
•Partner agent of other partners and the partnership
•Partners share in partnership property is always personality (personal
not real property)
•Subject to Partnership Act
•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
•Dissolved through disposition of property
•Persons who form a partnership are collectively called the firm and business is
carried on in the firm name
•Joint and several liability: Partners individually and as a collective group
have liability for a debt of the partnership
oPartners are agents for each other and for the partnership
oLiable for tort of partner if committed in course of partnership business
oJoint and several liability for business wrongs i.e. misappropriation, negligence,
CHECK LIST: OF ISSUES FOR A PARTNERSHIP AGREEMENT:
1. Statement of purpose: to ensure a common focus.
2. Amount of capital contributions: a clear statement of expectation and record of
what each partner has invested or will invest in the partnership.
3. Allocation of profit and loss: will it be equal or unequal, in proportion to
investment, or otherwise?
4. Responsibilities and authority of partners: who will do what in the daily operation
of the enterprise?
5. Signing authority over accounts and assets: one, two or all partners to sign?
6. Growth in number of partners: on what grounds would new partners be added (if
7. Reduction in number of partners: how would a departing partner’s share be
evaluated, and what mechanism would govern his or her buy-out by other partners?
8. Dispute resolution: how will difficult decisions be made? Is there a provision for
arbitration or buy-out?
Partnerships retain the same liability any form of business would have with its employees.
Partnership Act: Provides a number of rules that, in absence of any express or implied
agreement to the contrary, determine the partner’s interest with respect to each other. The rules;
as they appear in the Ontario statue provide as follows:
•Equal share in capital and profits
•Indemnity by the firm for personal payments and personal liabilities
•Interest paid on excess capital contributions (5% per annum)
•Interest accrued is not before profits
•Every partner may take part in management
•No new partners without consent of others
•No major changes to the partnership with the consent of all partners.
•No automatic right to remuneration
Dissolution: Subject to any term set in the agreement, the death or insolvency of a partner, or a
breach of a partnership trust.
•If one partner is to be insolvent, the remaining partners would be obliged to satisfy the
remaining demands of the creditors, not in proportion to the amount they share in profits,
but proportion to their capital accounts at the time of dissolution. (This acts as the best
indication of each partners sustainability to loss).
Limited Partnership: Containing a partner who may not actively participate in the management
of the firm, but has limited liability.
•Every limited partnership must have one à General Partner: A full partner with
unlimited liability for the debts of the partnership.
Limited Liability Partnership (LLP): A partnership where individual partners are liable for the
general debts of the partnership and for personal negligence, but not liable for the negligence of
•Suited to professional practices such as law and accounting.
Joint Venture: A business relationship not necessarily a partnership and can include an
individual and a corporation or virtually any joint venture between any business entities.
Registration: In some provinces partnership cannot defend or institute legal proceedings if it is
Chapter 17: Corporation Law
Corporation: A type of legal entity created by the state.
Nature of a Corporation:
•A corporation is separate and distinct from its shareholders. And its acts not through them
but through its authorized agents.
•A properly authorized agent may bind the corporation with third parties.
•The shareholders of a corporation possess limited liability for the debts of the
corporation, and the creditors may look only to the assets of the corporation to satisfy
•Shareholder: A person who holds a share interest in a corporation; a part owner
•Director: Under corporation law, a person elected by the shareholders to manage its
•Officer: A person elected or appointed by the directors to fill a particular office
(president, secretary, etc.)
•Shareholders elect directors and directors appoint officers
•Directors can be officers.
The Incorporation Process:
5. Share capital (restrictions)
•Public or private
6. Internal documents