Business Law- CH14- Chapter Study

1. Define sole proprietorship, partnership, and corporation. Pages 312, 315, 327

Sole proprietorship: an unincorporated business organization that has only one owner Partnership: a business carried on by two or more persons with the intention of making a profit Corporation: a business that is a separate distinct entity responsible for its own obligations

13. What is the difference between a business form and a business arrangement? Page 331

A business form refers to a manner of owning a business. A business arrangement refers to a method of carrying on the business activity itself.

12. How is a corporation created? Pages 329-330

A corporation comes into existence only if proper documents are submitted to the government and it issues, in return, a certificate of incorporation. Whether public or private, shares must also be issued to the owners of the corporation.

18. Is a distributor an agent? Explain. Pages 335-336

A distributorship does not normally involve an agency relationship, and some distribution contracts specifically hold that the distributor is not an agent. The relationship is one of contract, and the parties owe no other fiduciary obligations.

9. What is the difference between a general and limited partner? Page 325

A general partner has unlimited liability for the partnership's obligations, whereas a limited partner has liability limited to the amount contributed to the partnership's capital. As well, a limited partner has more narrowly defined rights. For example, a limited partner may not take part in the management of the partnership.

16. Is a joint venture a partnership? Explain. Page 334

A joint venture may be a partnership; usually it is simply a contractual arrangement.

10. Explain the difference between a limited partnership and limited liability partnership. Pages 325-326

A limited partnership has one or more general partners with unlimited liability and one or more partners whose liability is limited to the amount of their investment in the partnership. A limited liability partnership is generally one in which the partners have unlimited liability for their own negligence and malpractice but limited liability for their partners' negligence or malpractice unless they are in some way personally involved.

5. How can a partnership come into existence? Pages 318-319

A partnership can come into existence through agreement or by implication, that is, by conduct that suggests a partnership.

7. How can a partnership come to an end? Page 323

A partnership may end in the manner set out in the partnership agreement. If the agreement does not address this issue then the Partnership Act provides for termination under the following circumstances: if entered into for a fixed term, by expiration of the term if entered into for a single venture, by the termination of the venture by any partner giving notice of termination by death, insanity, or bankruptcy of a partner

4. What are the advantages and disadvantages of a partnership? Page 324

The advantages of a partnership relate to simplicity, costs, access to capital, share in profits, and possible tax benefits. The disadvantages relate to unlimited personal liability, loss of speed and independence, limitations on transferability, profit sharing, and possible tax disadvantages.

2. What are the advantages and disadvantages of a sole proprietorship? Page 315

The advantages of a sole proprietorship are its simplicity and lower cost of licensing, that quick and independent decision making is possible, no profit sharing occurs, generally no legal fees need to be incurred, and tax benefits are possible as profits or losses are reported on the owner's personal income tax return. The disadvantages of a sole proprietorship are that the risks and costs of the business are borne entirely by the sole proprietor, the sole proprietor has unlimited liability, generally there are low commitment levels among employees, the absence or illness of the sole proprietor can adversely affect business, the responsibility for all aspects of the business falls entirely on the sole proprietor, the business has limited access to capital, taxes may be favourable or unfavourable as there are no special tax rules governing a sole proprietorship, the business has a limited lifespan, and the business can't be transferred or sold as it has no legal status.

11. What are the advantages and disadvantages of the corporate form? Page 330

The advantages of the corporate form relate to limited liability, flexibility, access to capital, continuous existence, possible tax benefits, transferability, and potentially broad management base. The disadvantages relate to higher costs, public disclosure obligations, greater regulation, dissolution, possible tax disadvantages, possible loss of control, and the potential for bureaucracy.

14. What is the basis of a franchise? What is the relationship between parties to a franchise agreement? Pages 331-332

The basis of a franchise is a contractual arrangement between a manufacturer, wholesaler, or service organization (franchisor) and an independent business (franchisee), which buys the right to own and operate one of the units in the franchise system. Normally franchises are based on a unique product, trade name or patent, method of doing business, or goodwill. A contractual relationship exists between the parties to a franchise agreement. Currently, in Alberta, Ontario, and Prince Edward Island, the contractual relationship is augmented by legislation.

15. How does franchise legislation change the relationship between a franchiser and a franchisee? Pages 332-333

The relationship between a franchisor and a franchisee does not normally create fiduciary obligations. However, franchise legislation imposes on the parties a duty of good faith and fair dealing in the performance and enforcement of the franchise agreement. The courts have also adopted this concept at common law.

8. How can the risks of the partnership form be managed? Pages 324-325

The risks of the partnership form can be managed by creating a partnership agreement, which gives the partners freedom to define the relationship. The risks can also be managed by choosing partners carefully, educating partners on their authorities and limits and the consequences of exceeding these, monitoring the activities of partners, and insuring against liabilities created by a partner's wrongdoing.

6. Does the sharing of profits result in the creation of a partnership? Explain. Pages 316-317

The sharing of profits is one factor to consider in determining whether a partnership exists. The statutory definition of partnership covers people who expressly intend to be partners and people who may not but act as if they were. If people conduct themselves as if they were partners even if they did not expressly intend on being in a partnership, for example, by sharing profits, this is seen as a partnership in the eyes of the law.

17. What is the difference between a joint venture and a strategic alliance? Page 335

There may not be a difference between the two. The term "strategic alliance" is sometimes used to include joint venture. The key feature of a joint venture is that it is usually limited to a specific project or period of time.

3. How is a sole proprietorship created? Page 314

To create a sole proprietorship, one simply commences business activity. The only requirement is that the business be registered or licensed.