Business Organizations
14 important questions on Business Organizations
What is a Sole Proprietorship? How are they created?
Business license
What is a Partnership? How is it created?
People pool resources
Actions of parties - by agreement
What is a general partnership? What are the advantages/disadvantages?
- Advantages:
- No registration needed
- Fewer ongoing reporting obligations
- Income and expenses shared by partners
- Division labour and sharing of risk
- Combining resources and expertise
- Disadvantages:
- Each partner liable for actions of ALL partners
- Each partner is an agent for ALL partners
- Does not limit liability to world at large
- Partners must act in interest of partnership
- Can't differ income tax liability
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What is a Limited Partnership (LP)?
- Requires a general partner who manages the business
- General partner is fully liable for all debts and obligations
What are the advantages/disadvantages of an LP?
- Advantages:
- Fewer ongoing reporting obligations
- Income and expense sharing
- Liability and risk is limited to share
- Broader management base
- Disadvantages:
- Partners may still be fiduciaries
- Little opportunity to defer tax
- Easy to lose Limited Partner status
What is a Limited Liability Partnership (LLP)?
- Not a separate legal entity from partners
- All partners are active in management
What is a Corporation? How is it created? Who incorporates it?
All the powers of a person and an independent existence from its shareholders
Created by application for incorporation with at least one director and one shareholder
Must use Inc. Corp. Or Ltd. In name
What distinguishes a corporation from a Partnership?
Perpetual succession: existence does not depend on continued membership of its stakeholders
More regulatory bodies
What does a separate legal entity mean? How does this apply to corporations?
Can sue/be sued in its own name
DOES NOT IMPLY ABSENCE OF LIABILITY
If a corporation is considered a separate legal entity, how are professionals within the corporation held liable?
What would cause a court to pierce the corporate veil?
What are some of the advantages experienced by corporations?
- Tax advantages
- Limited liability
- Transferable ownership
- Continuous existance
- Seperate legal entity
- Easier to raise capital
What are some of the disadvantages experienced by corporations?
- More regulations and ongoing reporting
- More expensive to organize
- Extensive record keeping
- Shareholders/directors can be held responsible by regulatory bodies (pierce corporate veil)
- Personal guarantees undermine limited liability advantage
What are some risk mitigation strategies for businesses?
- Establish business as a corporation or LP rather than a partnership or proprietorship
- Minimize investment in share capital
- Obtain insurance
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