Business Models

Question 1

What are the three main business model structures available?

Answer 1

1) Sole Proprietorship
2) Partnership
3) Incorporated Company

Question 2

Sole Proprietorship

Answer 2

An individual carrying on business.

Question 3

Partnership

Answer 3

Two or more people carrying on business together for the purpose of making a profit.

Parties share:
- costs
- management of the business
- profits

Question 3

Partnership Act

Answer 3

governs whether or not there is a partnership. Governs relations of partners to each other and 3rd parties.

Question 4

What are the three ways partnerships are created?

Answer 4

1) by express contract
2) by inadvertence
3) by estoppel

Question 5

By Express Contract

Answer 5

written agreement indicates rights and obligations of partners.

Question 6

By Inadvertence (implied by conduct)

Answer 6

Factors that are considered:
- joint contribution of capital
- joint partnership in management
- sharing of profits
- is it an ongoing business?

Question 7

By Estoppel

Answer 7

although a partnership is not actually created, liability of a partnership will be imposed on a person who hold him/herself out as a partner to a 3rd party. He/she cannot later deny the existence of the partnership to escape liability to the 3rd party.

Question 8

Two types of liability of partners

Answer 8

1) Unlimited personal liability for all debts and obligations during partnership
2) Each partner is vicariously liable for other partners and employees.

Question 9

What are new partners not responsible for?

Answer 9

They are not responsible for prior debt in absence of his/her consent.

Question 10

Retiring partners are not responsible for what?

Answer 10

Not responsible for subsequent debt.

Exceptions: apparent authority (people still think they are a partner) and ongoing liabilities.

Question 11

Fiduciary Duty

Answer 11

partners must act in the best interests of the partnership.

• can’t take personal advantage of the business.
• must disclose any conflict of interest.

Question 12

Dissolution of partnership may result from?

Answer 12

• death or bankruptcy of partner.
• notice by one partner.
• completion of project or specified time.
• activity of partnership becomes illegal.

Question 13

Corporation

Answer 13

A corporation is a separate legal person - artificially created by statute as a separate legal entity.

Question 14

What are the two chief goals of incorporation?

Answer 14

1) attract investors
2) limit liability

Question 15

Broadly-Held Corporations

Answer 15

These are reporting, public, or offering corporations. Shares generally traded on stock market.

Question 16

Closely-Held Corporations

Answer 16

These are private corporations. They have fewer shareholders and there is restrictions on free transferability of shares.

Question 17

Proxy Fights

Answer 17

shareholders with small holdings often vote by proxy which allows a representative to vote on their behalf.

Question 18

Common Share vs. Preferred Share

Answer 18

Common Shares
- Right to vote
- Right to share in dividends when declared.

Preferred Shares
- unique rights / restrictions
- generally no voting rights

Question 19

Four types of protection of shareholders

Answer 19

1) Appraisal Remedy
2) Oppression Remedy
3) Preemptive Rights
4) Representative/Derivative Action

Question 20

Appraisal Remedy

Answer 20

minority shareholders have right to ‘dissent’ where directors/majority shareholders make fundamental changes to corporation.

Question 21

Oppression Remedy

Answer 21

shareholder can apply to court for protection from ‘oppression’ (actions that have negative effect on shareholders).

Question 22

Pre-emptive Rights

Answer 22

new shares must be offered first to existing shareholders to allow them to continue to own same proportion of shares in company.

Question 23

Representative/Derivative Action

Answer 23

Minority shareholder brings action for damage on behalf of the corporation, often against the directors.