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Chapter 4

MGTA03 – Chapter 4

4 Pages
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Department
Management (MGT)
Course Code
MGTA01H3
Professor
Chris Bovaird

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2009/10/05
MGTA03 – Chapter 4: Forms of Business Organization in Canada
Prof. Hugh Laurence
Sole Proprietorship
Characteristics
One person carries on a business
No formalities required other than the registration of the desired business name
No legal requirements of costs
Tax losses can be offset against other income
Very common because it is easy to get into
Many businesses at least start out as sole proprietorships
Can have employees
Drawbacks
Unlimited personal liability of the proprietor for debts and liabilities of the business
No potential continuity—when the owner dies the company will technically not continue
Depends on resources of the proprietorship
Raising money can be difficult
Partnerships
Characteristics
Two or more persons carry on a business together (can be up to 1000s but is typically described as a
small group of partners)
Intent is to generate a profit
Is not a separate legal entity from the partners
Most businesses in Canada were run as partnerships in 1900s+
Is legally dissolved when if one of the partners dies or leave, and if a new partner joins
Partners: involved directly in the business, make business decision themselves, and share in the profits
Advantages
Tax losses flow through to the partners
Law and accounting can only be practices in partnerships in Ontario
Disadvantages
Unlimited liability of partners for the debts and liabilities of the partnership business
Dealing with new and retiring partners
oNew partners require some form of approval from other partners (unanimous decisions)
oRetiring partners may sometimes switch partnerships and take clients with them
Limited partnerships and give advantage of tax loss flow-throughs
Limited Partnerships
At least one general partner
oHas unlimited liability and manages the business
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Description
20091005 MGTA03 Chapter 4: Forms of Business Organization in Canada Prof. Hugh Laurence Sole Proprietorship Characteristics One person carries on a business No formalities required other than the registration of the desired business name No legal requirements of costs Tax losses can be offset against other income Very common because it is easy to get into Many businesses at least start out as sole proprietorships Can have employees Drawbacks Unlimited personal liability of the proprietor for debts and liabilities of the business No potential continuitywhen the owner dies the company will technically not continue Depends on resources of the proprietorship Raising money can be difficult Partnerships Characteristics Two or more persons carry on a business together (can be up to 1000s but is typically described as a small group of partners) Intent is to generate a profit Is not a separate legal entity from the partners Most businesses in Canada were run as partnerships in 1900s+ Is legally dissolved when if one of the partners dies or leave, and if a new partner joins Partners: involved directly in the business, make business decision themselves, and share in the profits Advantages Tax losses flow through to the partners Law and accounting can only be practices in partnerships in Ontario Disadvantages Unlimited liability of partners for the debts and liabilities of the partnership business Dealing with new and retiring partners o New partners require some form of approval from other partners (unanimous decisions) o Retiring partners may sometimes switch partnerships and take clients with them Limited partnerships and give advantage of tax loss flow-throughs Limited Partnerships At least one general partner o Has unlimited liability and manages the business www.notesolution.com
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