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BUSI 3705U (10)
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Chapter 14

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BUSI 3705U

Chapter 14 Legal Environment of Business Business Forms and Arrangements Sole Proprietorship - An unincorporated business organization that has only one owner - Owner has unrestricted legal responsibility for obligations - Oldest, simplest form of business organization - No legislation pertaining to sole proprietorship as such - PROS: o Simplicity o Speed and independence o Profit motive o Lower costs o Tax benefits - CONS: o Unlimited personal liability o Working alone o Limited access to capital o Limited life span o Tax disadvantages Business Obligations Are Personal Obligations - Unlimited liability-unrestricted legal responsibility for obligations - Bank loan- owner must repay the loan - The breach of contract- owner personally liable for breach Partnership - A business carried on by 2 or more persons with the objective of making a profit - Similar to a sole proprietorship, in that neither has a legal personality – or legal existence – separate from the people who comprise them - Rules Governing Partnership→ sources o Partnership legislation (in place in every province) o Contract law o Agency law - Financial Liability o Partners are fully responsible for all debts of the partnership o Joint liability – liability is shared by 2 or more parties (partners) where each is personally liable for the full amount of the obligation o Bank can proceed against the partner with the most assets - Agency And The Partnership Act o Provides mandatory rules with respect to existence of partnership and what the relationship of partners is to outsiders o The Partnership Act- a partnership exists when two or more people “carry on business with a view towards profit” o The statutory definition of partnership covers people who expressly intend to be partners as well as people who may not necessarily intend to be partners but act as if they were o Relationship to each other – the Partnership Act provides that partners are agents of one another as well as agents of the firm in matters relating to the partnership business o Partners also owe a fiduciary duty to each other o Agreement should address the following issues:  Creation of the partnership  Capital contribution  Decision making  Profit distribution  Changes to partnership  Dissolution of partnership Chapter 14 Legal Environment of Business Business Forms and Arrangements o Agreement should be periodically reviewed and updated - Relationship Between Partners o Partnership Act provides for:  All partners are to share equally in the capital and profits of the business and contribute equally to the losses  Property acquired shall be used exclusively for the partnership  Partner shall be indemnified by the other partners for any liability incurred on behalf of the partnership  A payment made by a partner in excess of his agreed subscription shall earn interest  Each partner may take part in the management of the business  No partner is entitled to remuneration for acting in the partnership business  No new member admitted without consent of all partners  Disputes may be decided by a majority-must have consent of all the members  Partnership books shall be kept on partnership’s place of business  No simple majority may expel any partner - Relationship between partners and outsiders governed by the Partnership Act - Joint and several liability- individual and collective liability for a debt. Each liable party is individually responsible for the entire debt as well as being collectively liable for the entire debt - How And Why A Partnership Ends
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