MGTA01H3 Chapter Notes - Chapter 4: Chief Executive Officer, Legal Personality, Initial Public Offering

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3 Feb 2013

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Chapter 4: understanding legal forms of business organizations
Organizing options (forms of business ownership)
The sole proprietorship
- Sole proprietorship: a business owned and operated by one person
- Business is considered to be an extension of yourself
- Majority of businesses in Canada are sole proprietorships
Advantages of a sole proprietorship
- Freedom
- Answer to no one but themselves
- Easy to form
- Don’t need to register
- Tax benefits
Disadvantages of sole proprietorship
- Unlimited liability: personal liability for all debts of the business
- Lack of continuity
- Legally dissolves after the owner dies
- Depends on resources of one person whose managerial and financial limitations may constrain
the business
- Hard to borrow money to start up or expand
The partnership
- Partnership: a 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
- General partnerships: a type of partnership in which all partners are jointly liable for the
obligations of the business
- Limited partnerships: a type of partnership with at least one general partner (unlimited liability)
and one or more limited partners, limited partners cant participate in the day to day
management of the business or they risk the loss of their limited liability status
- General partners: partners who are actively involved in managing the firm and have unlimited
- Limited partners: partners who don’t participate actively in the business and whose liability is
limited to the amount they invested in the partnership
Advantages of a partnership
- Ability to grow by adding talent and money
- Easier time borrowing money
- Invite new partners to join by investing money
- Simple to organize
- Agreement
Disadvantages of a partnership
- Unlimited liability
- Lack of continuity
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