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MGTA01H3 (583)
Chapter 4

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Department
Management (MGT)
Course
MGTA01H3
Professor
Chris Bovaird
Semester
Fall

Description
Sole Proprietorship • business owned and operated by one person • considered an extension of self (no separate legal entity) • makes up majority of businesses in Canada, but small proportion of total business revenue Advantages • freedom-don't need to answer to anyone but yourself • easy to form ◦ don't need to register • simplicity of a legal setup • tax benefits (e.g. if suffer losses in early stages, can deduct from income) Disadvantages • unlimited liability ◦ personal liability for all debts of the business • legally dissolves when owner dies (lack of continuity) • harder to borrow money Partnership • 2 or more persons operate a business for profit • 2 basic types: ◦ general partnership ◦ limited partnership • general partnership ◦ all the partners share in the profits and have a say in managing • limited partnership ◦ don't participate actively in the business and liability is limited to the amount invested ◦ always have 2 kinds of partners ▪ general partner ▪ limited partner ◦ can only lose investment ◦ if limited parter participates in managing the business, becomes a general pattern Advantages • easier to borrow funds • simple to organize and few legal requirements • all have agreement, whether written, unwritten or unspoken • partners are taxed as individuals Disadvantages • each partner may be held personally liable for all debts • lack of continuity ◦ when one partner dies or backs out, partnership dissolves legally, even if others agree to stay ◦ cannot transfer partnership to someone else without everyone's consent (makes it difficult because need to find partner that is compatible) Corporation • separate legal entity that is liable for its own debts and whose owners' liability is limited to investment • shareholders ◦ investors who buy share os a corporation (they are the owners of the corporation) • board of directors ◦ governing body of a corporation ◦ responsibility: ensure that the corporation run in best interest of shareholders ◦ board chooses president and other offices of business • inside directors ◦ FT employ
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