Legal Relations Chapter #14

• The simplest form of business organization
• Has 1 owner
• Easy to set up
• No legal distinction between the business and its owner
• Unrestricted legal responsibility
• Unlimited personal liability

• PROS:
• Simplicity
• Speed and independence
• Profit motive
• Lower costs
• Tax benefits - can claim business expenses
• Control over decision making
• CONS:
• Unlimited persona liability
• Working alone (but can have employees)
• Limited access to capital (can only borrow)
• Limited life span (dies with owner)
• Tax disadvantages (must claim all business income with personal taxes)

• A business carried on by two or more persons with the objective of making a profit.
• Joint Liability - liability is shared by two or more parties (partners), where each is personally liable for the full amount of the obligation.
• Partners owe a fiduciary duty to each other.

• Partnership Legislation (in place in every province)
• Contract Law
• Agency Law

• It is highly recommended.
• If no written agreement, default rules from Partnership Act will apply.
• Agreement should be periodically reviewed.

• Creation of the Partnership
• Capital contribution
• Decision making
• Profit distribution
• Changes to partnership
• Dissolution of partnership

• All partners are to share equally in the capital and profits of the business and contribute equally to the losses.
• Property acquired shall be used exclusively for the partnership.
• Partner shall be indemnified by the other partners for any liability incurred on behalf of the partnership.
• A payment made by a partner in excess of his or her agreed subscription shall earn interest.
• Each partner may take part in the management of the business.
• No partner is entitled to remuneration for acting in the partnership business.
• Disputes may be decided by a majority - one must have consent of all members.
• No new member is admitted without consent of all partners.
• Partnership books shall be kept at partnership's place of business.
• No simple majority may expel any partner.

• Individual and collective liability for a debt. Each liable party is individually responsible for the entire debt as well as being collectively liable for the entire debt.
• ie: all partners are liable, not just to offending partner

• Pros:
• Simplicity
• Lower costs
• Greater access to capital
• Profit motive
• Tax benefits
• Cons:
• Unlimited personal liability
• Loss of speed and independence
• Limitations on transferability
• Profit sharing
• Tax disadvantages

• Choose partners with care
• Educate partners on their authority, its limits, and consequences of exceeding them
• Monitor activities of partners
• Notify clients and customers of the departure of partners to prevent being held liable for debts contracted by departed partners
• Insure against liabilities for wrongdoing

• A partnership in which the liability of some of the partners is limited to their capital contribution.
• At least one partner has unlimited liability (the general partner(s)) while others have limited liability.
• General partners have unlimited liability.
• Limited partners have a liability limited to the amount that they have contributed to the partnership capital.
• A partnership in which the partners have unlimited liability for their own malpractice but limited liability for other partners' malpractice.
• Designed to address concerns of professionals who are not permitted to use incorporation as a means of achieving limited liability.
• ie: accounting firms

• A distinct legal entity in law and capable of assuming its own obligations.
• Usually the safest vehicle for conducting business because the owners are normally shielded from person liability.

Person who has an ownership interest in a corporation.

Person elected by shareholders to manage a corporation.

Responsibility of obligations restricted to the amount of investment.

Division of profits payable to shareholders.

• Pros:
• Limited liability
• Flexibility
• Greater access to capital
• Continuous existence
• Tax benefits
• Transferability
• Potentially broad management base
• Cons:
• Higher costs
• Public disclosure
• Greater regulation
• Dissolution
• Tax disadvantages
• Possible loss of control
• Potential bureaucracy

Profits of the corporation are distributed to shareholders through dividends.

The corporation is managed by a board of directors, which in turn is elected by the shareholders. In addition, officers - that is, high-ranking corporate employees - can be hired by the board to assist in running the corporation.

A corporation can get its capital in two ways: it can borrow or its directors can issue shares.

Because it is a separate legal entity, a corporation pays its own taxes.

The fact that a corporation has a separate legal identity often allows for easy transference of an ownership interest represented by shares.

Because the corporation exists independently of its shareholders, the death or bankruptcy of one or more shareholders does not affect the existence of the corporation.

• An agreement whereby an owner of a trademark or trade name permits another to sell a product or service under that trademark or trade name.
• Disclosure agreements - Franchisors are required to deliver a disclosure document to prospective franchisees 14 days prior to franchisees entering into binding agreements or paying money.
• Franchisees have the right to rescind or cancel the franchise agreement within certain time periods if they do not receive a disclosure document.
• Parties to a franchise agreement have the duty of fair dealing in the performance and enforcement of the agreement.

Franchises have the right of association with one another and form or join an organization of franchisees.

• Distributorship or dealership
• Strategic Alliance - technology sharing (cellphone & cell towers)
• Joint Venture - 2 or more businesses to undertake a project
• Sales Agency
• Product Licensing