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Lec 2 - MGT 393 BUSINESS LAW Class Two Handout SOLE...

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Page 1 of 6 MGT 393 - BUSINESS LAW Class Two – Handout SOLE PROPRIETORSHIP PRACTICAL CONSIDERATIONS: § legal implications; § tax implications; § Note a business entity and not a “legal” entity Aside Canadian Income Tax Taxable entities: 1. Individuals (T1); 2. Corporations (T2); 3. Trusts (T3) Pay income tax on “taxable income” Taxable Income (simplified) calculated as: + Employment income + Business income + Property income + Other income + Taxable capital gains - Deductions allowed by ITA - Employment loss - Business loss - Property loss - Other Taxable income PARTNERSHIP (GENERAL PARTNERSHIP) WHAT IS A PARTNERSHIP? CONCEPT “partnership is the relation which subsists between persons carrying on a business in common with a view to profit ”; (a business entity – not a separate legal entity) Partnership 2. Partnership is the relation that subsists between persons carrying on a business in common with a view to profit, but the relation between the members of a company or association that is incorporated by or under the authority of any special or general Act in force in Ontario or elsewhere, or registered as a corporation under any such Act, is not a partnership within the meaning of this Act. R.S.O. 1990, c. P.5, s. 2. determination of whether or not a partnership exists is critical and will impact legal consequences including liability historical perspective very old business entity so many common law precedents; statute 45. The rules of equity and of common law applicable to partnership continue in force, except so far as they are inconsistent with the express provisions of this Act. R.S.O. 1990, c. P.5, s. 45.
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Page 2 of 6 persons who have entered into partnership are collectively called a “firm” [s.5] Meaning of “firm” 5. Persons who have entered into partnership with one another are, for the purposes of this Act, called collectively a firm, and the name under which their business is carried on is called the firm name. R.S.O. 1990, c. P.5, s. 5. partnership is not a legal person distinct from the partners - thus a partner cannot be an employee; partnership can be for a single undertaking income tax (share of income taxed at the “partner level” – not as a partnership entity) ELEMENTS OF A PARTNERSHIP A) (SOME FORM OF) AGREEMENT express or implied - not necessary that parties intended to create a partnership; B) COMMON BUSINESS FOR COMMON PROFIT community of interest in the benefits accruing from joint activity C) OTHER PRACTICAL partnership is a contractual relationship; relationship founded on mutual trust partner’s share in partnership property is never real property Partnership Act applies (refer to legislation) DETERMINING EXISTENCE OF A PARTNERSHIP (important due to profit/liability aspect) A) GENERAL determined by real intentions of parties as ascertained by their conduct (starting point in determining existence); B) CONSIDER RULES PRESCRIBED BY PARTNERSHIP ACT joint tenancy, tenancy in common (etc.) does not itself create a partnership [s.
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