Chapter 20.docx - Chapter 20 Basic Forms of Business Organizations Sole Proprietorships o Simplest form of business org o Exists when a person carries

Chapter 20.docx - Chapter 20 Basic Forms of Business...

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Chapter 20: Basic Forms of Business Organizations Sole Proprietorships o Simplest form of business org o Exists when a person carries on business on their own, without adopting any other form of business org, such as a corporation o Ex. Cutting neighbours grass each week for money o You can enter into a contract to employ someone to do the task for you, but you remain the sole owner of the business and the only person responsible for its obligations o No separation (legally and practically) between the sole proprietorship business org and the person who is the sole proprietorship o A sole proprietor cannot be an employee of the business because you cannot contract with yourself o Sole proprietor get all the benefits and burdens of the business o Sole proprietor responsibilities Performing all contracts entered into the course of the business Including contracts with customers, employees, suppliers, lenders All torts committed personally in connection with the business and all torts committed by employees in the course of their employment For income tax purposes, the income or loss from the sole proprietorship is taxed in the hands of the sole proprietor o Advantages Simple and easy to set up Easy to dissolve Sole proprietor stops carrying on the business You are liable for the businesses obligations even if you stop it o Disadvantages Unlimited Personal Liability Third parties may take all of the sole proprietors personal assets to satisfy the business’s obligations Exposure to personal liability becomes important to using a sole proprietorship Liability will be sole proprietor’s alone While you can try to manage the liability through contracts and insurance, incorporation is usually less expensive and more effective Raising money Only method is to borrow money directly Other forms of business permit a wider range of financing possibilities o Limited financing options and unlimited personal liability means that sole proprietorships are used only for relatively small businesses
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Legal Requirements for Sole Proprietorships o Name of a sole proprietorship must be registered if that name is something other than, or more than, the proprietor’s personal name Ex. Amman Malik wouldn’t have to register if he carried on a grass-cutting business under his own name He would have to register if he used the name “Malik’s Gardening Services” or “Superior Gardening Services” o Registration must be completed in every province/territory in which the sole proprietor carries on business o Registration does not create any ownership interest in the business name o The sole proprietor’s interest may be protected, however, under provincial passing-off laws and federal trademarks law o A second requirement, which applies to all forms of business organization including sole proprietorships, is that a business licence is necessary for some types of activities.
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