Chapter 8 Flashcards
(36 cards)
1
Q
List the 4 standard legal forms of ownership and describe each:
A
- Sole proprietorship: a business that is owned by 1 person.
- Partnership: an association of 2 or more individuals carrying on a business to earn an income.
- Corporation: a legal entity with the authority to act and have liability separate and apart from its owners.
- Cooperative: an organization owned by the members who use its services
2
Q
Advantages of sole proprietorship:
A
- relatively easy and inexpensive to set up
- directly controlled by the owner or operator
- flexible, with little paperwork
- business losses can be deducted from other income
3
Q
Disadvantages of sole proprietorship:
A
- owner can be held personally liable for debts and obligations of the business
- opportunity for continuity is restricted
- owner’s ability to raise capital is restricted
- income is taxed at a personal rate
4
Q
General partnership:
A
- each partner manages the business
- each partner assumes unlimited personal liability for debts and obligations
5
Q
Limited partnership:
A
- composed of one or more limited partners and at least one general partner
- the general partner manages and assumes the downside risk
- the limited partner does not manage; liability is limited to the amount of his or her original investment
6
Q
Advantages of partnership:
A
- it is easy to set up
- new partners can be easily added
- it involves few legal requirements
- risk is generally shared
7
Q
Disadvantages of partnership:
A
- tax and estate planning options are limited
- partners can be personally liable
- decision making and dissolution can be difficult
8
Q
Cautionary notes for partnership:
A
- get everything in writing
- each partner must have their own lawyer
- have a written partnership agreement
- consider a shotgun clause
9
Q
Shotgun clause:
A
- One partner can make a buyout offer to the other partner for his or her share of the business.
- The receiving partner has the option of either accepting the offer or buying out the partner under the same terms
10
Q
Advantages of corporation:
A
- there is greater potential for limited liability
- there are possible tax advantages
- it can upgrade image
- it offers ease of continuity
11
Q
Disadvantages of corporation:
A
- there are potentially fewer tax write-offs at the beginning
- there are higher start up costs
- there is increased paperwork and complexity
12
Q
A shareholders agreement is a legal document that establishes:
A
- The rights of shareholders (owners)
2. The duties and powers of the board of directors
13
Q
A shareholders agreement is not _______ _____ but is strongly recommended. Keep the agreement ______. Consult professional advisors (especially a _____ and ______) before you sign any agreement. Include a ______ option.
A
- legally required
- simple
- lawyer
- accountant
- buy-sell option (consider a shotgun provision)
14
Q
All cooperatives are guided by the same 7 principles:
A
- Voluntary and open membership
- Democratic member control
- Member economic participation
- Autonomy and independence
- Education, training, and information
- Cooperation among cooperatives
- Concern for community
15
Q
Advantages to cooperatives:
A
- there are potentially more sources of start-up capital
- as owners, members are potentially more motivated than employees
- there is increased opportunity to network and share ideas
- there is limited liability
16
Q
Disadvantages to cooperatives:
A
- it is sometimes difficult to get agreement
- there may be management conflicts
- external financing may be difficult
17
Q
Considerations for your business name:
A
- protect your business name
- do a name search
- request a NUANS
18
Q
CRA - major start up requirements:
A
- business number
- payrolll deductions
- federal income taxes
- GST or HST
19
Q
What considerations do you have to have with PST?
A
- PST differs for each province
- register to collect PST
20
Q
Patent:
A
- federal government grant that gives an inventor exclusive rights to his/her inventions
- patents cover new inventions, or any new and useful improvement of an existing invention
21
Q
Copyright:
A
- exclusive right to copy a creative work or allow someone else to do so
- copyrights provide protection for artistic, dramatic, musical, or literary works
22
Q
Trademark:
A
Word, symbol, or design, or a combination of these, used to distinguish the goods or services of one person or organization from those of others in the marketplace.
23
Q
3 basic types of trademarks:
A
- Ordinary marks
- Certification marks
- Distinguishing guise
24
Q
Tips to getting a will:
A
- don’t do your own will
- get a lawyer
- make your lawyer aware of all your business arrangements
- decide what you want to happen if you should die
- choose an executor
- don’t procrastinate
25
Succession planning:
- the process of establishing the procedures to change or transfer ownership or control of a business
- be proactive
26
Key issues to confront with succession planning:
- do you want a family member to continue the business?
- who should be included in the decision making?
- what is your vision for the family business?
- what qualities should the next company leader have?
- how can you make a graceful exit and not look back?
- if you die, how should control and ownership be transferred?
27
What is bankruptcy and what are the benefits to the debtor?
- Bankruptcy is a legal process, regulated by the Bankruptcy and Insolvency Act, by which you may be discharged from most of your debts.
- the purpose of the act is to permit an honest, but unfortunate, debtor to obtain a discharge from his or her debts, subject to reasonable conditions.
- once you are legally bankrupt, you are required to perform specific duties as outlined in the act
28
How does one become bankrupt?
1. Meet with a trustee in bankruptcy, who will assess your financial situation and explain other options available to you.
2. If you decide to become bankrupt, the trustee will help you complete several forms, which you will have to sign.
3. You are considered a bankrupt only when the trustee files these forms with the Official Receiver
29
What happens to my property if I go bankrupt?
- your property is given to a trustee in bankruptcy, who then sells it and distributes the money among your creditors.
- your unsecured creditors will not be able to take legal steps to recover their debts from you (such as seizing property or garnisheeing wages)
30
What kinds of forms will I have to sign if I decide to go bankrupt?
- assignment form: state that you are handing over all of your property to the trustee for the benefit of your creditors.
- statement of affairs form: list your assets, liabilities, income, and expenses.
- answer several questions about your family, employment, and disposition of assets
31
Does the bankruptcy affect my co-signers?
Your bankruptcy does not cancel the responsibility of anyone who has guaranteed or co-signed a loan on your behalf. For example, if your parent co-signed a loan for you, that parent would be liable to pay the loan in full, even if you decide to file for bankruptcy.
32
When is a bankrupt discharged?
There will be an automatic discharge for first-time bankrupts 9 months after they become bankrupt unless the trustee recommends a discharge with conditions or the discharge is opposed by a creditor, the trustee, or the superintendent of bankruptcy.
33
What is the effect of a bankruptcy discharge?
The bankrupt is released of most debts. However, some debts are not released, among them an award for damages in respect of an assault; a claim for alimony, spousal, or child support; a debt arising out of fraud; any court fine; or debts or obligations for student loans when the bankruptcy occurs while the debtor is still a student or within 10 years after the bankrupt has ceased to be a student.
34
How does bankruptcy affect employment?
For the most part, bankruptcy should not affect your employment. However, there are some special cases. For example, you might have difficulty being bonded. Your trustee will be able to give you more information on other possible restrictions or prohibitions.
35
Is there anything I can do to improve my credit record after obtaining my discharge from bankruptcy?
Contact your banker and request a meeting. For this meeting, you could bring your paycheque stubs, your budget, and your discharge papers. You could explain that you have obtained your discharge and ask the banker how you can earn your way back to a good credit record.
36
Does it cost anything to go bankrupt?
Yes. There is a filling fee to be paid to the superintendent of bankruptcy. In addition, the trustee is entitled to be paid. These fees are prescribed by the Bankruptcy and Insolvency Rules.
