Chapter 20: Basic Forms of Business Organizations Sole Proprietorships oSimplest form of business org oExists when a person carries on business on their own, without adopting any other form of business org, such as a corporation oEx. Cutting neighbours grass each week for money oYou 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 obligationsoNo separation (legally and practically) between the sole proprietorship business org and the person who is the sole proprietorship oA sole proprietor cannot be an employee of the business because you cannot contract with yourself oSole proprietor get all the benefits and burdens of the business oSole 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 oAdvantages 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 oDisadvantages Unlimited Personal Liability Third parties may take all of the sole proprietors personal assets tosatisfy the business’s obligations Exposure to personal liability becomes important to using a sole proprietorshipLiability 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 oLimited financing options and unlimited personal liability means that sole proprietorships are used only for relatively small businesses
Legal Requirements for Sole Proprietorships oName of a sole proprietorship must be registered if that name is something otherthan, or more than, the proprietor’s personal nameEx. Amman Malik wouldn’t have to register if he carried on a grass-cuttingbusiness under his own name He would have to register if he used the name “Malik’s Gardening Services” or “Superior Gardening Services” oRegistration must be completed in every province/territory in which the sole proprietor carries on business oRegistration does not create any ownership interest in the business name oThe sole proprietor’s interest may be protected, however, under provincial passing-off laws and federal trademarks law oA 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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