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CA (168,409)
UTSC (19,325)
MGT (1,095)
MGTA01H3 (583)
Chapter 4

Chapter 4

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

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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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Description
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 busines
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