Business Organizations

Question 1

Partnership

Answer 1

Partnership is automatically created if: two or more people are carrying on a (1) business (2) in common (means with more than one person) (3) with a view of profit

Question 2

Legal nature of partnership

Answer 2

• no independent existence and merley represents the collective rights and duties of all the partners
• Every partner is an agent with each other (which means they are all in contract)

Question 3

Termination of partnership –

Answer 3

• Termination by notice or expiry
• Termination on death or insolvency
• Dissolution by law: mentally incopentent, permanatly incapable, guility of conduct that can negitivily affect the business, breaches agreement, or just and equitable
• Effect of dissolution: assets are used to pay creditors; remaining distributed proportionately to the partners

Question 4

Liability to creditors:

Answer 4

creditors can first obtain the assets of the partnership, and then the assets of the partners

Question 5

Liability to creditors:

Answer 5

creditors can first obtain the assets of the partnership, and then the assets of the partners

Question 6

Legal liability:

Answer 6

a partnership’s name can be used in the cause of action
If one of the partners commit a tort you are held liable (even if you were not aware)

Question 7

Contractual Liabilites of Partners:

Answer 7

every partner is jointly liable for the obligations of the partnership. This is based on principles of agency and privity of contract

Question 8

Pre-partner liability:

Answer 8

a new partner does not become liable for the previous actions of the partnership

Question 9

Post-partner liability:

Answer 9

a partner who retires from a firm dies not cease to be liable for partnership debts or obligations incurred before the retirement
(if committed while they were a partner, they would still be held liable)

Question 10

Apparent partnership

Answer 10

they would be held liable as if they were partners of the firm (applies to people who are retires but name still appears on the firm)

Question 11

Tort Liability/ Breach of Trust:

Answer 11

• The firm is liable for “any wrongful act or omission of any partner acting in the ordinary course of the business or the firm”
• The firm, including all the partners, are jointly liable for injuries or damages caused by a parter doing the firms business

Question 12

Other Types of Partnerships

Answer 12

• Limited Partnership
• General Partnership

Question 13

Limited Partnerships (LP):

Answer 13

• liability limited to amount invested (like a shareholder)
  Limted partners cannot take part in the active management of the partnership
• Passive investors, cannot lose their personal assets – most that can happen is if the company goes bankrupt and they lose their investment

Question 14

General Partner

Answer 14

unlimited personal liability
Managers of the business
Unlimited liability and treated like normal partners

Question 15

Limited Liability Partnership (LLP)

Answer 15

individual partners remain liable for their own negligent actions, but he non-negligent partners are not personally liable for losses caused by the negligence of another partner

Question 16

Corporations:

Answer 16

A legal person formed by incorporation under statute

Question 17

Unique Attributes:

Answer 17

• (differences from partnerships)
• Limited liability of shareholders – cannot come after personal assets
• Transfer of ownership – can sell shares, allows for corporation to grow
• Separation of management and control
• No duty of good faith for shareholders – can act in their own self interest
• Continuity
• Taxation
• Salary – pay personal tax
• Divident – pay tax – Therefore, no tax benefit
• But there is a benefit of a tax deferral, where you can keep your money in the company so you can pay less tax each year

Question 18

Corporate Capital

Answer 18

Equity vs. Debt: corporations raise money by issuing shares (equity) or borrowing money (debt)

Question 19

Share capital:

Answer 19

• Authorized Captial: maximum amount of shares a corporation is allowed under its articles
• Issued Captial: shares issued by corporation
• Paid-up Captial: shares that have been issues and fully paid for
• Stated Captial Account: amount received by a corporation for the issue of its shares