COMM 103 Reading Notes
Chapter 13 Introduction to Capital and Financial Markets
Business Ownership Options
1. A key initial decision associated with the formation of a business is the type
of legal structure to be utilized in order to enable the individual, or
individuals, to commence business operations
2. Five factors that will influence legal structure decision: Ease of Set-Up,
Degree of Control, Magnitude of Risk, Financial Capacity, and Required skills
3. As the needs of the organization change, or the level of risk magnifies, the
need to adjust the business organization’s legal structure may be in the best
interests of all those involved.
1. It refers to a business that is owned by one person and that is initiated
without a requirement to create a separate legal entity.
2. Advantages: beyond the simplicity of the commencement of the operations, is
that the sole proprietor has 100 percent control of the business with regard
to ownership and in making decisions relating to the business.
3. Risk Issues: the sole proprietor is 100% personally exposed to the liabilities
to the skills possessed by the sole proprietor. They are limited to their won
personal capacity to invest and/or borrow money in support of the business
1. Partnership is a business organization that is formed by two or more
2. Partnership Agreement is a written agreement among the partners that
outlines the expectations of each partner and details how the partnership is
going to work. This agreement ensures that the expectations of each partner
and the details of how the partnership is going to work are fully understood
by all partners involved; it outlines the percentage of ownership that is
attributed to each partner.
3. Joint and Several Liability refers to the liability obligation of partners as the
result of a legal contract. Partners can be held individually liable for their
share of the obligation (several), or fully liable for the full obligation (joint) in
the event that the other parties to the agreement are unable to pay their
4. Limited Liability Partnership is a partnership that is made up of both general
partners (at least one) and limited (passive) partners. Limited partners are
individuals who contribute equity capital to the organization, but are not
actively involved in the management of the business operation and have
minimal control over daily business decisions.
5. Advantages VS Disadvantages see Textbook. Pg 356
1. It is a business entity that, legally, is separate and distinct from its owners.
2. Incorporation is the legal process of setting up a corporation. It can be done
at either the provincial or federal level. 3. Board of Directors is an appointed or elected body of a for-profit or not-for-
profit corporation that oversees and advises management on issues
challenging the organization on behalf of its stakeholders and shareholders.
4. Advantages: limited liability; ownership rights are clearly defined and are
based on the percentage of stock owned by its owners; the ability to issue
shares of stock; be eligible for many deferral government programs and to
take advantage of tax incentives relating to capital gains exemptions and
small business deductions. (Other pros and cons can be seen in Textbook on
5. Private Corporations are corporations whose ownership is private. The
shares of stock of the corporation are not p