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Legal Forms of Businesses (Corporation (Has a separate legal existence (A…
Legal Forms of Businesses
Sole proprietorships
Responsible for
Performing all contracts;
all torts committed personally
in connection with the business
and all torts committed by
employees during employement
Income tax purposes
Easy to set up and dissolve;
but it is for unlimited personal
liabilities and is difficult to
raise money
Legal requirements
Register the
trade name
Have a business
licence
General partnerships
Legal requirements
Register the trade name
Have a business licence
Factors suggesting
the existence of a
partnership
Sharing profits
Sharing responsibility for losses
Jointly owning property
Participating in management
Representing oneself as a partner
or allowing others to do so
Characteristics
All benefits and losses accrue directly to the partners
All partners are all personally liable for all obligations
of the business
A partner cannot be employed by the partnership
All partners have unlimited liability to third party
Income to the partnership is taxed as personal income
to the partners at their personal progressive tax rates
Default rules
All partners share equally in the profits and losses
All partners equally use and share the business property
All partners have the equal votes
None is entitled to a salary or wage
Requires the consent of all existing partners
to accept new partners
Requires the consent of all existing partners
to change the nature of the business
Dissolution
When one partner gives notice of termination
When a partner dies or becomes insolvent
When a partnership was set up for a limited time
and that purpose was achieved
Debts and liabilities of partnership paid first;
debts to partners paid second;
Iivested capital returned to partners third;
remainer of partnership assets distributed to
partners by sizes shares
Fiduciary duty
To put partners' interests first ;
to avoid competing with partnership business
Limited partnerships
One general partner has
unlimited liabilities
One or more limited partners have
limited liabilities
Exists only when a limited
partnership declaration
is filed with government
The limited partners have
no control of business and
can be employees of
the business
Corporation
Governed by the Ontario Business
Corporations Acts & the Federal
Canada Corporations Acts
Creation in Ontario:
the main filing are:
articles of incorporation;
a name search report;
the fee
Has a separate
legal existence
A shareholder can be an employee
or a creditor of the corporation
The death or withdraw has
no legal impact on the business
The corporation is treated as a
separate tax payer for income
tax purposes.
The shareholders have
no legal liability.
Management of corporations
Shareholders elect directors;
directors appoint senior officers;
directors hold regular meetings.
Finance
Equity
A claim to the residual value;
if not met, cannot be sued for damage
Rights for Common shares:
to vote for directors:
to receive dividends;
to receive remained property
after a corporation dissolved
Rights for preferred shareholders:
to receive dividends
Debt
A fixes amount;
If not repaid, there is
a breach of contract.
Fiduciary duty for
directors and officers
Must make full disclosure of any personal interest
in any transaction involving the corporation
and abstain from participating in the decison
regarding the decison
Must not take advantage of confidential
information gained through their positions
Must avoid conflicts between personal interests
and corporation interests
Duty of care:
understand the basic
of the business;
monitor what happens
and keep informed
about problems
Limited liability
partnerships
All partners are able to control the business
All partners' liability is limited except
A partner who causes
liability through the tort
of negligence has
unlimited liability
while other partners
have limited liabilities