Chapter 4 study notes
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_____________________________ Chapter 4
There are usually 4 types of legal ownership for businesses:
The Sole Proprietorship
A business owned and operated by one person.
Majority of businesses in Canada
Business and owner are one legally
Freedom: don’t need to answer to anyone but themselves
Simple legal setup: registration is not required.
Tax benefits: losses in early stages can be deducted from income (one legal entity).
Unlimited liability: Personal liability for all debts of the business
Lack of continuity: legally dissolves when owner dies
Depends of resources of one person (managerial and financial limitations)
Difficulty borrowing money from banks
2 or more persons agree to combine money, managerial and technical abilities to
operate a business for profit
oGeneral Partnerships: all partners share in profits, managing the business,
unlimited liability for all partners
oLimited Partnerships: at least one general partner (run the business and
have unlimited personal liability for debts) and one or more limited
partners (no say in managing the business and not personally liable for
debts – loses only initial investment).
Easier to borrow funds
Able to invite new partners to join business (ability to grow by adding talent and
Few legal requirements (private agreement between partners)
Taxed as individuals (not regarded as legal entities)
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