Chapter 4

19 views3 pages
Published on 17 Dec 2010
School
UTSC
Department
Management (MGT)
Course
MGTA01H3
Professor
Chapter 4 Understanding Legal Forms of Business Organization
ORGANIZING OPTIONS (FORMS OF BUSINESS OWNERSHIP)
-Four options are available: the sole proprietorship, the partnership, the corporation, and
the cooperative.
The Sole Proprietorship
-The sole proprietorship is a business owned and operated by one person.
- Majority of businesses in Canada are sole proprietorships yet this form of ownership
accounts for only a small portion of total business revenues.
Advantages
-Freedom
-Easy to form
-The simplicity of legal setup procedures
-Tax benefits the losses can be deducted from income the proprietor earns from
personal source other than the business.
Disadvantages
-Unlimited liability personal liability for all debts of the business.
-Lack of continuity the business legally dissolves when the owner dies
-Hard to borrow money to start up or expand
The Partnership
-A partnership is formed when two or more persons operate a business for profit.
-General partnership is a type of partnership in which all partners are jointly liable for the
obligations of the business.
-Limited partnership is a type of partnership with at least one general partner (who 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.
-General partners are partners who are actively involved in managing the firm and have
unlimited liability.
-Limited partners are partners who dont participate actively in the business and whose
liability is limited to the amount they invested in the partnership.
-The partnership agreement is strictly a private document.
Advantages
-The ability to grow by adding talent and money
-Easier time borrowing funds
-Can also invite new partners to join by investing money
-Simple to organize, with few legal requirements
Disadvantages
-Unlimited liability
-All partners are liable when debt is incurred even if they know nothing about it
-Difficulty of transferring ownership
-Provides little or no guidance in resolving conflict between the partners.
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Document Summary

Chapter 4 understanding legal forms of business organization. Four options are available: the sole proprietorship, the partnership, the corporation, and the cooperative. The sole proprietorship is a business owned and operated by one person. Majority of businesses in canada are sole proprietorships yet this form of ownership accounts for only a small portion of total business revenues. Tax benefits the losses can be deducted from income the proprietor earns from personal source other than the business. Unlimited liability personal liability for all debts of the business. Hard to borrow money to start up or expand. Lack of continuity the business legally dissolves when the owner dies. A partnership is formed when two or more persons operate a business for profit. General partnership is a type of partnership in which all partners are jointly liable for the obligations of the business.