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Chapter 14 - CHAPTER14 Objectives , thelegalconsequ

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C HAPTER 14 B USINESS F ORMS AND A RRANGEMENTS Objectives After studying this chapter, you should have an understanding of: the characteristics of the major forms of business organizations the advantages and disadvantages of the major forms of business organizations the legal consequences of a partnership methods of arranging business activity Learning Outcomes Understand the differences between sole proprietorships, partnerships, and corporations (pages 317, 320, 332, 336) Understand the advantages and disadvantages of each form of business organization (pages 320, 329, 335) Understand the difference between unlimited liability and limited liability (pages 318, 330) Understand the significance of the difference between limited liability and unlimited liability when choosing the form of business organization (pages 318, 321, 333, 336) Recognize other business arrangements (page 336) Chapter Summary Every business must operate as a sole proprietorship, partnership or corporation. Both the sole proprietorship and partnership suffer from the disadvantage of unlimited liability for business debts, which means that personal assets can be seized to pay business debts. Since a corporation is a separate legal entity, it is responsible for its own debts. Shareholders cannot be called upon to pay the debts of the corporation, other than the purchase price of the shares. There are other advantages and disadvantages of each form of business organization that may influence the decision as to what form the business will use, such as taxation issues, but by far and away the major issue for consideration and planning revolves around the issue of liability. Study Outline Use this outline to prepare a complete set of notes for this chapter. Forms of Business Organization – page 317 Sole proprietorship – page 317 _____________________________________________ _______________________________________________________________________ © 2008 BY N ELSON , A DIVISION OF T HOMSON C ANADA L TD .
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PART 4: STRUCTURING BUSINESS ACTIVITY Financial liability_________________________________________________________ Unlimited liability__________________________________________________ Profit sharing_________________________________________________________ Decision making______________________________________________________ Sources of capital______________________________________________________ Taxation ____________________________________________________________ Transferability________________________________________________________ Regulations___________________________________________________________ _______________________________________________________________________ Pros and cons of the sole proprietorship_______________________________________ _______________________________________________________________________ Partnership – page 320 ___________________________________________________ _______________________________________________________________________ Financial liability______________________________________________________ Joint liability______________________________________________________ Profit sharing_________________________________________________________ Decision making______________________________________________________ Sources of capital______________________________________________________ Taxation ___________________________________________________________ Transferability________________________________________________________ The Partnership Act ____________________________________________________ When a partnership exists____________________________________________ The relationship of partners to one another_______________________________ Partnership agreement checklist________________________________________ The relationship of partners to outsiders_________________________________ Joint and several liability__________________________________________ Termination of a partnership__________________________________________ Regulations__________________________________________________________ Pros and cons of partnership________________________________________________ _______________________________________________________________________ Partnership variations______________________________________________________ Limited partnership____________________________________________________ Limited liability partnership (LLP)________________________________________ Corporation – page 332 ___________________________________________________ _______________________________________________________________________ Financial liability______________________________________________________ Shareholders_______________________________________________________ © 2008 BY N ELSON , A DIVISION OF T HOMSON C ANADA L TD . 14-2
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CHAPTER 14: BUSINESS FORMS AND ARRANGEMENTS Directors__________________________________________________________ Limited liability____________________________________________________ Profit sharing_________________________________________________________ Dividends______________________________________________________ Decision making______________________________________________________ Sources of capital______________________________________________________ Taxation ___________________________________________________________ Transferability________________________________________________________ Perpetual existence_____________________________________________________ Regulations___________________________________________________________ Pros and cons of the corporation_____________________________________________ _______________________________________________________________________ A comparison of major forms of organizations – page 336 _______________________________________________________________________ _______________________________________________________________________ _______________________________________________________________________ _______________________________________________________________________ Business arrangements – page 336 _______________________________________________________________________ Franchise ___________________________________________________________ _______________________________________________________________________ Franchise relationship__________________________________________________ Franchise law_________________________________________________________
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