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Chapter 26

BU231 Chapter 26

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Keith Masterman

1 READING NOTES CHAPTER 26 – Sole Proprietorships & Partnerships Sole Proprietorship • Come into existence without formalities, can occur just by actions • Subject to many regulations that apply to all forms of business o eg. Municipal license is normally required for electricians, plumbers etc. • If the name of business is different from the owner its must be registered (applies to all forms of businesses) Partnership • Formed by two or more persons o natural – individuals; legal – corporations • Advantage in that you can pool resources and knowledge together • Disadvantages can result from disagreement (time to reach agreement), dishonesty Nature of Partnership • “Partnership is the relation which subsists between persons carrying on a business in common with a view of profit” • Persons can be found to be partners even though no written or oral agreement exists… if they acted as partners • Four Elements in a partnership 1) Relationship a. Consensual, contractual b. Normally formal written partnership 2) Between Persons a. “Partnership” refers exclusively to joint business enterprises carried for profit (excludes charities, joint trustees of an estate, or public boards) b. For example, a group of investors holding securities are not carrying on a business (unless trading and dealing) 3) Carrying on Business in Common 4) With a view to profit a. Court considers profit sharing that coincides with ratio of capital contribution as strong evidence of partnership b. Evidence of whether person receiving share of profits has taken an active role in the business Creation of a Partnership • Partnership Agreement (Written or oral) o Main purpose is to set out as carefully and clearly as possible, the entire terms of the relationship:  Identity of partners, name of firm  Nature of the business to be carried on  Duration of the relationship, method of terminating the partnership  Division of profits 2 o The Partnership Act sets out implied terms that fill in any gaps in a partnership agreement …  If you forget to state how profits are divided, the act will make it fifty-fifty  Partners are entitled to be indemnified for expenses or personal liabilities by the firm  No change can be made in the nature of the partnership without unanimous consent of the partners  No member may be introduced to the partnership without consent of all existing parties  Partners owe a fiduciary duty to render true accounts and full info regarding anything affecting the partnership… disclose everything, duty not to compete or to pay over those profits o In order to draft an effective partnership agreement, parties must consider the most likely events that will lead to disagreement and upset the partnership • Registration o In Ontario, you don’t need to register if your business name is the same as your own o Simple, only need to file in local registry office the names, addresses of partners, name under which they intend to carry business o Limited partnerships have a great deal of formalities Liability of a Par
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