Topic 8 – Part 2 – Business Organizations

What is a sole proprietorship?

A business owned by one individual, unincorporated.

What is the liability of a sole proprietor?

Unlimited personal liability.

How is income taxed in a sole proprietorship?

On the owner’s personal tax return.

What is a general partnership?

Two or more people carrying on a business for profit.

Does a partnership have independent legal existence?

No; it represents the collective rights and duties of partners.

What happens when a partner dies or a new one joins?

Partnership dissolves and reforms.

Who owns partnership property?

The partnership as a whole, not individual partners.

What is partner liability in a general partnership?

Partners are jointly liable for partnership debts and torts.

What is pre-partner liability?

A new partner is not liable for debts incurred before joining.

What is post-partner liability?

A retiring partner remains liable for debts incurred before leaving.

What is an apparent partner?

Someone who appears to be a partner and becomes liable as one.

What are the default financial rules for partnerships?

Equal profit/loss sharing; no salary unless agreed; reimbursement for expenses.

What are the default rules for partnership management?

All partners may manage; majority decides ordinary matters; all must consent to fundamental changes.

What are the fiduciary duties in a partnership?

Duty to give information, avoid conflicts, and disclose/return secret benefits.

What are the default ways a partnership ends?

Notice, expiry, death, insolvency, mental incapacity.

Who are the two types of partners in a limited partnership (LP)?

General partners and limited partners.

What is the liability of a limited partner?

Limited to their investment (if they do not manage).

What is a limited liability partnership (LLP)?

Partners are liable only for their own negligence and those they supervise.

What is a corporation?

A separate legal entity formed by incorporation. are liable only for their own negligence and those they supervise.

What is limited liability of shareholders?

Shareholders risk only their investment.

What are the main characteristics of a corporation?

Limited liability, transferable shares, separation of ownership/management, continuity, separate taxation.

What is the result of separate legal personality?

Corporation can sue/be sued, own property, and is liable for its own torts and breaches.

What is piercing the corporate veil?

Ignoring corporate separateness when used for fraud or improper purposes.

What are the two main incorporation statutes?

CBCA (federal) and OBCA (Ontario).

What are articles of incorporation?

The document that creates the corporation and sets out basic corporate information.

What are corporate by-laws?

Internal operating rules approved by directors and shareholders.

What is a private issuer?

A corporation with restricted share transfers and no public share trading.

What is a share transfer restriction?

Requirement that shareholders get board approval before transferring shares.

What is a public (distributing) corporation?

A corporation that sells shares to the public and must follow securities laws.

What is a professional corporation?

A corporation for licensed professionals who remain liable for their own negligence.

What are the two ways corporations raise capital?

Issuing shares and borrowing money.

What are the three main shareholder rights?

Vote, receive dividends, share in winding-up distribution.

What is a joint venture?

A contractual agreement between parties for a specific project.

What is an income trust?

A trust that holds income-producing assets for investors.