Textbook Notes (362,879)
Canada (158,081)
MGTA02H3 (361)
Chapter 4

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University of Toronto Scarborough
Management (MGT)
Chris Bovaird

MGTA03 Chapter 4 – Understanding Legal Forms of Business Organization The Sole Proprietorship - Sole proprietorship: business owned and operated by one person - Majority of businesses in Canada are sole proprietorships, this form of ownership accounts for only a small proportion of total business revenues  Advantages of Sole Proprietorship  Freedom – they are to answer to no one but themselves  Easy to form – if you operate the business under your own name with no additions, you don’t even need to register your business name to start operating as a sole proprietor  Low start-up costs  Tax benefits – since the business and the proprietor are legally one and the same, these losses can be deducted from income the proprietor earns from personal sources other than the business  Disadvantages of Sole Proprietorship  Unlimited liability: personal liability for all debts of the business. A sole proprietor is personally liable for all debts and legal liabilities incurred by the business  Lack of continuity – a sole proprietorship legally dissolves when the owner dies  Depends on the resources of one person whose managerial and financial limitations may constrain the business The Partnership - Partnership: formed when two or more persons operate a business for profit - Two basic types of partnerships: 1. General partnership  Partners share in the profits of the business and have a say in managing the business  All partners are personally liable for the debts and other liabilities of the partnership business 2. Limited partnership - has at least one: a) General partner  Run the business and have unlimited personal liability for its debts and liabilities b) Limited partner  Do not participate in managing the business  Share some of the profits but have no personal liability or the debts and liabilities of the partnership business MGTA03 - If a limited partner does participate in managing the business of the partnership, the limited partner becomes a general partner  Advantages of Partnership  Partnerships also have a somewhat easier time borrowing funds than do sole proprietorships because banks and other lending institutions prefer to make loans to enterprises that are not dependent on a single individual  Simple to organize  Few legal requirements begin with an agreement which may be written, oral, or even unspoken  Partnership agreement is a private document  No laws require partners to file an agreement with some government agency, nor are they regarded as legal entities  Partners are taxed as individuals  Disadvantages of a Partnership  By law, each partner may be held personally liable for all debts incurred in the name of the partnership  Another problem with partnership is lack of continuity  A related drawback is the difficulty of transferring ownership. No partner may sell out without the other partners consent  A partnership provides little or no guidance in resolving conflict between the partners The Corporation - Basic characteristic of all corporations are that they share legal status as a separate entity, property rights and obligations, and an indefinite lifespan - Corporation: separate legal entity that is liable for its own debts and whose owners liability is limited to their investment - Shareholders: investors who buy shares of a corporation. They are the real owners of the corporations - profits may be distributed to stockholders in the form of dividends, although corporations are not required to pay dividends. Instead, they often reinvest any profits in the business - The board of directors is the governing body of a corporation.  Its basic responsibility is to ensure that the corporation is run in a way that is in
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