Chapter 17,18,4,5.doc

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Management (MGS)
Murphy Lawrence

Chapter 17 Law of Sole Proprietorship and Partnership Sole Proprietorship - A business where the sole owner is responsible for the management and debts of the business - Not a lot of capital to start a business, but has all the power to make decisions themselves Partnerships - 2 or more people provides a better way to gain capital and expertise - Banks or more willing to give more credit to partnerships than sole proprietors - Partnership: A legal relationship between two or more persons for the purpose of carrying on a business with a view to profit, and it is not incorporated Nature of a Partnership - If each party contributed capital and actively participated in the management of the business, then these actions would be indicative of the existence of a partnership - Difference between co-ownership and partnership o Co-ownership is a distinct and separate relationship o A partnership is a contractual relationship, and co ownership may arise because of inheritance o Partnership is not freely alienable, while a co-ownership is not based on mutual trust so a person could sell their part in the business no questions asked o A partnership is subject to the partnership act in its operation, while co-ownership may be dissolved or terminated by division of the property - A partnership may be established by estoppel. If a person hold himself out as being a partner either by words or conduct they also may be liable as a partner - All persons with capacity to enter into contracts have the capacity to become a partner Liability of a Partnership for the Acts of a Partner - Joint and Several Liability: Where partners individually and as a group have liability for a debt of the partnership - One partners actions or statements create liability for themselves, and for each of the other partners - If the act is not something that falls within the ordinary scope of the business then only that partner would be liable - Carefully select partners, and write a detailed written partnership agreement that clearly shows each partners rights and responsibilities - Under the partnership act a new partner is not liable for any debts incurred before they become a partner, unless they agree to do so. - A retiring partner is not relieved of debts incurred while he was a partner, and if proper notice is given to all persons who had previous dealings with the firm the retiring partner would not be liable for partnership debts uncured after the date of retirement Liability of a Partnership for the Acts of its Employees - The partnership would be liable for a tort committed by an employee if it is committed in the performance of the business (e.g. employee negligently performs work that causes injury to customer) - The partnership could also be liable for a contract entered into by an employee if the employee has authority to enter into such contracts Rights and Duties of Partners to One Another - Normally set out in a partnership agreement - Need consent of all existing partners to make changes in ordinary business - If one partner using the partnership property or money to open up a business or use the property for personal income, they owe that money back to the partnership - If a partner should engage in a competing business without consent and profits earned by the competing business could be claimed by the partnership - When a partner changes or assigns his or her shares to another, the assignee does not become a partner, and only becomes entitled to receive the share of the profits. - Only way for the person to become a partner is to draft a new partnership agreement in which all partners consent to Dissolution of a Partnership - Dissolution: The termination of the partnership relationship - Provide a method for partnership termination in the partnership agreement to set out terms of timeliness, and profits - Will dissolve automatically if set out for a specific period of time - Death or insolvency of a partner will dissolve the partnership, unless stated otherwise in the agreement - Pay outside debts first, then pay each partner Limited Partnership - Limited Partner: A partner who may not actively participate in the management of the firm but has limited liability - General Partner: A full partner with unlimited liability for the debts of the partnership - If a limited partner begins to make management decisions or their name is added to the company name or letterhead then they would be considered a general partner Limited Liability Partnerships - Limited Liability Partnership (LLP): A partnership where individual partners are liable for the general debts of the partnership for personal negligence, but not liable for the negligence of other partners (e.g. accounting firms) Joint Venture - Joint Venture: A business relationship between corporations - Has tax benefits Registration of Partnerships - Declaration usually required depending on province and can be done at the local registry office Fiduciary Duty - Partners have a fiduciary duty to one another, one of utmost faith - Though the precise implications vary by situation, it implies a duty to always act in the best interests of the party owed the duty - In the context of a partnership, it suggests a duty to put the affairs of the partnership above ones own, and to act honestly towards - Full rendering of profits - No competitionChapter 18 Corporation Law Historical Development of the Corporation: - Corporation: A type of legal entity created by the state The Nature of a Corporation - A corporation is not an individual or partnership. It is a separate legal entity, in the sense that it has an existence at law, but no material existence. - Possesses many attributes of a natural person, but is artificially created and never dies in the natural sense o It is separate and distinct form its shareholders, and it acts not through them but through authorized agents o A properly authorized agent may bind the corporation in contract with third parties o The shareholders possess limited liability for the debts of the corporation, and the creditors may look only to the assets of the corporation to satisfy their claims - Shareholder: A person who holds a
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