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Chapter 4

MGTA01H3 Chapter Notes - Chapter 4: General Partnership


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

Page:
of 4
Introduction to Management Chapter 4
Canada is a free market economy; therefore entrepreneurs need no permission, pay no fees,
and need not to fill out any special forms to start a business. They just simply begin.
3 Main forms of Organization
In Canada 3 common forms:
Sole Proprietorship
Partnership
Corporation
Sole Proprietorship
Easiest way to form a business
Most Common form of ownership
Example: Local math tutor, kid who shovels drive ways, private swimming teacher.
In a sole proprietorship the business is owned and operated by 1 person.
Sole proprietor:
-makes all decisions
-keeps all profits
-responsible for all debts
Advantages: Easy to setup, with no regulatory requirements, no mandatory accounting
needs. Cheap to set up ($60 - $70 if registered/ $0 if not), Does not need to be registered,
and management and ownership clear.
Disadvantages: limits to owners skills, limits to owners resources, hard to get finance
(bank loans).
Personal Liability: you are personally responsible to pay any bills, settle any lawsuits,
and pick up all the pieces.
Unlimited Liability: your personal responsibility is unlimited; you can be unlimitedly
sued if anything goes wrong. No limit to the value of the job. No limit to the value of the
assets used on the job.
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Partnership
A business owned and operated by 2 or more people acting together. Two (or 3) heads are
better than one. With a partnership come more resources (human and financial), more
credibility (more than 1 owner), and more contacts (potential customers).
Can run into conflicts because of there is more than one owner and all are personally and
unlimitedly liability.
Joint and Several Liability: each partner is responsible for debts of partnership, even
when incurred by another partner.
Agreement between partners normally includes:
-how much money each partner contributed
-what each partner must do
-how the partners paid/remunerated
-how profits distributed
Between partners only, this agreement does not bind others.
General Partnership
A general partnership is the simplest form of partnership. All partners share in ownership,
management, and are all unlimited and personally liable for debts.
Limited Partnership
A limited partnership is a partnership with partners who take no part in the management
of the business. The limited partner only supplies money only. They have limited liability
(they can only lose their investment).
Corporations
A corporation is the most sophisticated way to organize a business. It DOES require
paperwork and fees.
This is for businesses that want:
Larger number of owners
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Split between ownership and management
Limited liability for owners
A legal entity, authorized to operate a business. The corporation is responsible for its own
debts. A corporation is owned by shareholders with limited liability.
Corporations attributes are as follows:
The right to own property
The right to enter into contracts
The right to hire and fire employees
The right to sue and be sued
The obligation to pay taxes
They have many of the same rights as people.
How Corporations are created
Founders of business (incorporators) must complete all necessary legal documents. Right
to create corporation is granted by legal authority (e.g. Province of Ontario).
Articles of incorporation outlines name, address, purpose of Corporation. Articles identify
Incorporating Directors, and number of shares authorized.
Submit articles plus $500 to province and the province will send back a Certificate of
Incorporation. The Certificate creates the legal entity called a corporation.
Share: A share is a piece of paper that gives evidence of ownership. Investors pay money for
ownership. 1 share = 1 vote.
Owners (Shareholders) elect directors. The director runs the corporation for the owners.
The director hires Officers and employees to work for the corporation.
The name of corporations must include one of the following:
Limited, Limitée
Ltd, Ltée
Incorporated, Inc.
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