Legal Relations Chapter #14

  1. What is a Sole Proprietorship?
    • 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
  2. What are the Pros & Cons of a Sole Proprietorship?
    • 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)
  3. What is a Partnership?
    • 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.
  4. What are the Sources of Law governing Partnerships?
    • Partnership Legislation (in place in every province)
    • Contract Law
    • Agency Law
  5. Should you have a Partnership Agreement?
    • It is highly recommended.
    • If no written agreement, default rules from Partnership Act will apply.
    • Agreement should be periodically reviewed.
  6. What should you address with a Partnership Agreement?
    • Creation of the Partnership
    • Capital contribution
    • Decision making
    • Profit distribution
    • Changes to partnership
    • Dissolution of partnership
  7. What are some default partnership rules under the Partnership Act?
    • 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.
  8. What is Joint and Several Liability?
    • 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
  9. What are some Pros & Cons of a Partnership?
    • 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
  10. How can you manage the risks in partnership relationships?
    • 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
  11. Define Limited Partnership.
    • 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
  12. Define a Corporation.
    • 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.
  13. What is a Shareholder?
    Person who has an ownership interest in a corporation.
  14. What is a Director?
    Person elected by shareholders to manage a corporation.
  15. What is Limited Liability?
    Responsibility of obligations restricted to the amount of investment.
  16. What is a Dividend?
    Division of profits payable to shareholders.
  17. What are the Pros and Cons of a Corporation?
    • 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
  18. What is Profit Sharing?
    Profits of the corporation are distributed to shareholders through dividends.
  19. What is Decision Making (in a Corporation)?
    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.
  20. What are the Sources of Capital?
    A corporation can get its capital in two ways: it can borrow or its directors can issue shares.
  21. Define Taxation for the Corporation.
    Because it is a separate legal entity, a corporation pays its own taxes.
  22. Define Transferability of a Corporation.
    The fact that a corporation has a separate legal identity often allows for easy transference of an ownership interest represented by shares.
  23. Define Perpetual Existence with regards to a Corporation.
    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.
  24. Describe the Franchise.
    • 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.
  25. What is the Right of Association for a Franchise?
    Franchises have the right of association with one another and form or join an organization of franchisees.
  26. Name some other Business Arrangements.
    • Distributorship or dealership
    • Strategic Alliance - technology sharing (cellphone & cell towers)
    • Joint Venture - 2 or more businesses to undertake a project
    • Sales Agency
    • Product Licensing
Card Set
Legal Relations Chapter #14
Legal Relations Chapter #14