Chapter 4 – Understanding Legal Forms of Business Organization
Organizing Options (Forms of Business Ownership)
The Sole Proprietorship- A business owned and operated by one person.
• Majority businesses in Canada are sole
- tax benefits, business and proprietor are legally the same
- Unlimited Liability: Personal liability for all debts of the business
- Lack of continuity is that the business dissolves when owner dies
- Depend on resources of one person managerial and financial limitations may constrain the business
- Hard to borrow money to start up or expand
- Form of organization established when two or more persons agree to combine their financial,
Managerial and technical abilities for the purpose of operating a business for profit
• General partnership: a type of partnership which all partners are jointly liable for the obligations of the
• Limited Partnership: at least one general partner (has unlimited liability) and one or more limited
partners. The limited partners cannot participate in the day to day management of the business or they
risk the loss of their limited liability status
- Two kinds of partners
- General partners Partners who are actively involved in managing the firm and have unlimited liability
- Limited Partners: That are not active and limitability limited to the amount they invest in partnership
- ability to grow by adding talent and money
- Easier time borrowing funds than sole. Banks like them because not only one dependant and can invite
new partners too
- Agreement questions (private document no laws)
1) How will disagreements be resolved?
2) Who invested hat sums of money in the partnership?
3) Who will receive what share of the profits?
4) Who does what and who reports to whom?
5) How will partnership be dissolved?
6) How would leftover assets be distributed?
- unlimited liability (each person personally hold responsible for all debts)
- lack of continuity
- difficulty transferring ownership
- provides little to no guidance in resolving conflicts between partners
- Business that is a separate legal entity that is liable for its own debts and whose owners’ liability is limited to
• Basic characteristic – legal status as a separate entity, property rights and obligations, and an indefinite
• Defined as artificial being, invisible, intangible, ands existing in contemplation of the law.
• Shareholders: Person who own shares in a corporation ( in form of dividends) • Board of Directors: group of indivi