law 122 exam chart.pdf - CHAPTER 20 Business Organization...

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CHAPTER 20 Business Organization Definition/Characteristics Legal Test Exceptions Sole Proprietorship Exists when a person carries on a business on their own. (entitled to all income, liable for all obligations) Advantage: simple & easy to setup and dissolve. Disadvantage: Unlimited personal liability and limited financing options 1. No Legal registration as a Sole Proprietorship is required 2. Must comply with the general requirements imposed on all business 3. Name must be registered if other than personal name 4. Registration must be completed & business license is necessary for some activities NO EXCEPTIONS Partnership Three main types: 1. general partnership, 2. limited liability partnership, 3. limited partnership. - No separation between partnership and partner - Partner cannot be an employee - Partners have unlimited liabilities - Personal assets may be sized to satisfy partnership debt. 1. Sharing profits (not just revenues) or losses 2. Jointly owning property or jointly contributing capital 3. Involvement in business especially management 4. Joint authority for contracts and bank accounts 5. Equal access to business information (all documents and financial statements) 6. Holding each other out as partners or acquiescing (telling the world - letterhead, signoff, board) 7. Engaging on ongoing activities rather than one project 8. Consider the risks on unintended partnership (if both 2 people are responsible) General Partnership Exists when 2 or more persons carry on a business together with a view to a profit (all benefits accrue directly to partners, all partners are liable for all business obligations) *as soon as a project is talked about or worked on with view to make profit, partnership exists. Don’t need to register yet. Advantage: easy to setup & few formalities Disadvantage: Unlimited personal liability 1. Two or more people 2. Carry on a business together 3. With view to profit Unless the partners agree otherwise, the default termination rules are ending the partnership 1. Any partner may terminate the partnership on notice 2. Termination on death or insolvency (no money left) of partner People may share profits without

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