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1-BusinessLawEthics_ch02_p01.pptx

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1-BusinessLawEthics_ch02_p01.pptx

  1. 1. BUSINESS LAW AND ETHICS 410-C01-HE & 410-T011 Forms of carrying Business Chapter 02, ch7 of the book – Part 01
  2. 2. Learning Objectives • Discuss sole proprietorship • Describe partnership • Explain how a partnership can be created • Review the rights and duties of partners • Discuss the liabilities that may be incurred by partners • List the advantages of partnership • Explain how a partnership can be dissolved 2
  3. 3. Types of Business Organization Sole Proprietorship – an individual carrying on business alone Partnership (General, Limited and LLP) – two or more people carrying on business together for the purpose of making a profit Corporation – a legal entity, separate from the people who own and control it 3
  4. 4. Corporate veil Piercing the corporate veil or lifting the corporate veil is a legal decision to treat the rights or duties of a corporation as the rights or liabilities of its shareholders. Comply with the following to maintain your corporate veil. Maintain a separate bank account for the corporation or LLC. Don't commingle personal assets with those of the corporation or LLC. Don't divert corporate or LLC assets for personal use. Don't tell a creditor that you will personally guarantee payment of the corporation or LLC's debts. 4
  5. 5. Other forms of business There are other ways for people to work together to carry on a commercial activity. A non‐profit society can be set up under legislation, this also creates a separate legal entity, but the procedure of incorporation and the obligations of those involved are quite different. A holding corporation holds shares in other corporations. A joint venture involves several different corporations that band together to accomplish a major project. They may form a separate corporation or a partnership. 5
  6. 6. Sole Proprietorship An individual carrying on business alone • Must adhere to licensing and governing laws: - Registration and licensing - Zoning bylaws - Comply with workers compensation, employment insurance and income tax regulations - Keep sufficient records to satisfy government agencies • Unlimited liability corporation (ULC) is a corporation designation, wherein shareholders are liable up to unlimited amounts for any liability, act or default of the corporation. By comparison, in most corporations, shareholders are not usually liable due to a limited liability model 6
  7. 7. Sole Proprietorship The sole proprietor owns all the assets, receives all the profits of the business, and is responsible for all its debts and liabilities. This unlimited liability can be the most significant disadvantage of the sole proprietorship. When liability is incurred for breached contracts or torts, or where there is insurmountable debt, the whole burden falls on the sole proprietor. Under the principle of vicarious liability, the sole proprietor is responsible for any tort committed by an employee during the course of employment. 7
  8. 8. Partnership  A group of people carrying on business together with the object of making a profit  Not a separate legal entity (A separate legal entity is a person recognized by law - a "legal person". The entity has its own legal rights and obligations, separate to those running and/or owning the entity). 8
  9. 9. Partnership A partnership is presumed: • Joint contribution of capital to establish a business • Intention to share expenses, profits or losses • Joint participation in the management of a business. 9
  10. 10. Partnership Creation by Contract Best to create a partnership is through a contract • Statutory rights and obligations of the partners can be modified by agreement. Investment and profit percentages should be laid out clearly 10
  11. 11. Partnership Creation by Contract (Cont.) Partnership Agreement should deal with: • Duties of each partner and what type of work or talent each is expected to contribute • Amount of time and money to be committed to the business by each partner • How the profits are to be shared and how the capital is to be distributed • Any limitations on the powers or authority of each partner • Methods of resolving any disputes between the partners and how the business is to be managed • The circumstances in which the partnership will be dissolved 11
  12. 12. Partnership Unlimited Liability Partners’ liability is not limited to the assets of the partnership • Personal assets may be used to satisfy claims against partnership Insurance coverage is important. • A third party can collect from any partner 12
  13. 13. Partnership • Requirements of unanimous consent protects partners • Less expensive to form and operate than incorporation • Some tax advantages available 13
  14. 14. Limited Partnerships • Limited partners are liable only to the extent of their investment The limited partner is only liable for the sum of their capital contribution – also called a liability sum. ... A limited partner is a limited partnership member who makes a contribution to the limited partnership and is only liable for the company's liabilities up to the amount of this contribution. Avoids the unlimited liability that goes with being a general partner Provides some of the advantages of incorporation to partnerships • Limited partners cannot take part in control of the business • Registration is required for limited partner 14
  15. 15. Limited Liability Partnerships (LLP) • A limited liability partnership (LLP) is a partnership in which some or all partners (depending on the jurisdiction) have limited liabilities. It therefore can exhibit elements of partnerships and corporations. • Eligible professionals: Accountants, lawyers, dentists, etc. • The victim cannot pursue individual assets of non-negligent partners. 15
  16. 16. Dissolution of a Partnership • Usually a partnership is easy to dissolve, requiring only notice to that effect by one of the partners. • The death, bankruptcy or insolvency of a partner • Subject to the partnership agreement, a partnership is dissolved by the death or insolvency of any partner. Fixed-term expiry of partnership PARTNERSHIP WITH A FIXED TERM A partnership wherein the term for which the partnership is to exist is fixed or agreed upon or one formed for a particular undertaking, and upon the expiration of the term or completion or the particular enterprise, the partnership is dissolved • Partnership can be dissolved by request to the court 16
  17. 17. Payment of debts and Liability 17 Profits Capital Personal assets of partners
  18. 18. Distribution of Assets After payment of debts: • Capital and remaining funds will be paid to partners  Distribution can be set out in partnership agreement 18
  19. 19. Keep in mind the distinction between a limited partnership and the more recent limited liability partnership. A limited partner is in effect an investor who does not participate in the partnership business, his liability is limited to losing what he has invested. However, a limited liability partner is an active professional who practices his/her profession with other partners and who is liable for his/her own negligent acts and for those committed by others under his/her supervision. 19

Editor's Notes

  • *. This unlimited liability can be the most significant disadvantage of the sole proprietorship. When liability is incurred for breached contracts or torts, or where there is insurmountable debt, the whole burden falls on the sole proprietor.
  • *Public notice of dissolution required to prevent further liability
  • Subject to the partnership agreement, when dissolving a partnership, the debts must be paid first out of profits and, if they are insufficient, out of the capital the partners originally invested.
    If there is still not enough money to pay the debts, the creditors can then turn to the partners themselves, who are liable in the proportion in which they were entitled to share profits.
    Remember that all partners are liable to pay the creditors no matter what the partnership agreement says.
  • Once all creditors have been paid and the other obligations of the partnership are satisfied, any assets still remaining are applied first to pay back the partners for advances and then to pay back the original capital investment. Any remaining funds are divided among the partners on the established basis for sharing profits.

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