Textbook Notes (368,122)
Canada (161,660)
RSM219H1 (136)
Chapter 4

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Rotman Commerce
Bill Mc Conkey

ORGANIZING OPTION (FORMS OF BUSINESS OWNERSHIP) • Sole Proprietorship: a business owned and operated by one person. Legally, if you set up a business as a sole proprietorship, it is considered to be an extension of yourself. This form of ownership is usually small; however it can be as large as a steel mill. The majority of businesses in Canada are sole proprietorships, however, they only account for a small portion of the total business revenues.**** o Advantages: Freedom. It is easy to form. If the business is run under your name, you don`t even need to register you business name and it can start operating immediately. It is simple in terms of legal setup and requires low start-up costs. There are also tax benefits. Since most business lose money in the early stages, a sole proprietorship can deduct the loss from the owners personal sources because the business and the owner are one in the same. o Disadvantages: There is unlimited liability – personal liability for all debts of the business. If the business fails, bills must be paid out of the owner`s pocket.Another disadvantage is lack of continuity. Once the owner dies, so does the business.Asole proprietorship relies on the skills, abilities, and resources of one person which may be limited. These businesses find it hard to borrow money to start-up or expand because banks fear they may not get all their money back if the owner can`t function. • Partnership: formed when two or more persons agree to combine their financial, managerial, and technical abilities for the purpose of operating a business for profit. There are two forms of partnership:  General partnership: all partners are jointly liable for the obligations of the business. So if one partner does not have enough to pay his or her debts, then the other partners must assume responsibility.  Limited partnership: contains two kinds of partners—at least one general partner(s) who run the business and assume full liability and one or more limited partners, who do not participate in managing the business, do share some of the profits but have no personal liability.Alimited partner can only lose the original investment in the partnership. Once a limited partner participates in the business, they become a general partner and have full liability. o Advantages: ability to grow by adding talent and money. They have easier time borrowing money from banks and can also invite new partners to join by investing money. It is simple to organize and with few legal procedures.ALL partnerships must begin with an agreement: oral, written or unspoken. This agreement should include points on resolving a disagreement, the amount invested by each partner, the share of profits for each partner, the job of each partner, when the partnership dissolves, and how the leftover assets are distributed amongst partners. o Disadvantages: unlimited liability is the greatest drawback.All partners are responsible for a debt, even if it is one persons fault. This form of ownership lacks continuity. When one partner dies or pulls out, the business dissolves. There is also a difficulty of transferring ownership because selling out requires the other partners to give consent. Finally, a partnership provides minimal or no guidance in resolving conflicts. The Corporation: a business that is a separate legal entity that is liable for its own debts and whose owners liability is limited to their investment. It is an artificial being, invisible, intangible, and existing only in the contemplation of the law. Shareholders—investors who buy shares of a corporation—are the real owners of the corporation. The profits may be distributed amongst the shareholders in form of dividends. This is not a requirement; most corporations invest profits in the business itself. The corporation is ran by a board of directors –a group of individuals elected by a firms shareholders and charged with overseeing, and taking legal responsibility for, the corporations actions. The board chooses the president and officers and delegates the power to ru
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