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ADMS 3920 (34)

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Administrative Studies
ADMS 3920
Cameron Johnston

CHAPTER 10_Form of Organization and Legal Issues Common legal forms of organization  Sole Proprietorship: a business owned and operated by one person - Advantages:  Ownership of the company name and assets may be transferred  Owner gets all profits  There is generally no registration or filling fee  Freedom from interference - Disadvantages:  Unlimited personal liability  No tax free benefits  Death/incapacity of owner terminates business  Partnership: a legal entity formed by two or more co-owners who freely agree on a business for profit - General partnership - Limited partnership: this form consists of at least one general partner and one or more limited partner.  Limited partner: A partner in a limited partnership who is not active in its management and has limited personal liability.  General partner: a partner in a limited partnership who has unlimited personal liability.  If people engage in active management, such as meeting, make decision, they will lose the limited partner shield, and they will become unlimited liability.  Corporation: a business organization that exists as a legal entity and provides limited liability to its owners. - Legal entity: a business organization that is recognized by the law as having a separate legal existence. - Federal corporation - Provincial corporation Partnership Pro’s Con’s - Sharing workload - Interpersonal conflicts - Sharing emotional burden - Dissatisfaction with partner - Procuring executive talent - Absence of one clear leader - Sharing financial burden - Unlimited liability - Companionship - Frustration of not calling own shots Factors to consider in choosing among the primary legal forms of organization  Initial organizational requirements and costs  Liability of owners  Continuity of business  Transferability of ownership  Management control  Attractiveness for raising capital  Income taxes Rights and Status of Shareholders  Ownership in a corporation is evidenced by share certificates, a document specifying the number of shares owned by a shareholder.  Ownership of shares typically carries a pre-emptive right,  the right of shareholders to but new shares in the corporation before they are offered to the public.  The legal status of shareholders - Ownership  Provides measure of control over the firm via vote  Limits liability to investment in the firm  Can be transferred without affecting the firm’s operations  Does not give direct right to participate in company management Limited liability of shareholders  Limited liability is a major advantage of the corporate form of organization > their financial liability is limited to the amount of money invested in the business.  Exception is if shareholder provides guarantee to cover company debts if not otherwise paid Death or Withdrawal Shareholders  Ownership in a corporation is readily transferable  Exchange of shares is sufficient to convey an ownership i
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