COMM 315 CH 6 Exam Study Guide
3 types of business ownership - ANSWER sole proprietorship, partnership,
corporation
Sole Proprietorship - ANSWER - one owner, owns 100% of business
- proprietor is personally liable for all debts: very high risk
- termination: death of owner or decision to stop operating
- few business operate this way: high risk of personal liability , incorporation has
tax benefits
Partnership - ANSWER A contract by which the parties, in spirit of cooperation,
agree to carry on an activity, including the operation of an enterprise, to
contribute thereto by combining property, knowledge, or activities and to share
among themselves any resulting pecuniary profits (monetary profits)
General partnership: partnership agreement - ANSWER - a private contract
signed by all of the partners which specifies the roles, contributions, function
and share of profits of each partner.
-This contract should also provide for a mechanism to buy/sell/transfer the
interests of a partner.
- Partners may be human beings or corporations
Partnership Liability - ANSWER all partners liable for 100% of debts, business
creditors can go after personal assets of partners
Solidary (joint, several) liability - ANSWER Creditor can sue all for 4 partners or
any individual partner for liability
limited partnership - ANSWER partnership in which only one partner is required
to be a general partner, special partners do not have personal liability for debts
Corporation - ANSWER legal persons and have similar rights to those of human
beings (natural persons)
o Own property
o Enter into contracts
o Have employees
o Since a corporation cannot speak or act for itself:
(it is a legal person, not a natural person), corporations make decisions through
mandataries (directors, officers or managers) based on rules of Mandate
, Corporation: name registration - ANSWER the corporation must file an annual
registration form (online) with the government of which province in which the
company has a physical office, and with the Federal government if incorporated
federally
Shareholders - ANSWER owners of the company; buy shares/invest, do not
manage the company, can be legal persons or human beings
principle function of shareholders - ANSWER shareholders vote to elect the
directors at annual shareholders meeting
Directors - ANSWER mandataries of the company:
-The rules of mandate apply with director relationship with company
- Have full power to manage all affairs of the company: issue shares, dividends,
raise/borrow money
- Can delegate day-to-day management of the company to officers
- Can be shareholder and/or officer of the company
Officers - ANSWER responsible for the day-to-day running of the company. They
are mandataries of the company
- Officers are the senior employees of the company e.g. CEO, COO, CFO
Shareholders liability - ANSWER Limited liability: only liable to pay for their
shares, not personally liable for company debt
Common shares / class A shares - ANSWER If company only has one class of
shares they are referred to as a Class A shares
historically: common shares
- Holders of common shares are generally entitled to the following three rights:
1. Right to vote
2. Right to receive dividends (surplus of profits) - if declared by company
3. Right to receive residual property (if company is liquidated)
Issuing shares - ANSWER Equity financing: shares are issued to generate
working capital for the company, the company does not acquire additional debt,
no obligations to pay shareholders back, more shares means dilution of votes
3 types of business ownership - ANSWER sole proprietorship, partnership,
corporation
Sole Proprietorship - ANSWER - one owner, owns 100% of business
- proprietor is personally liable for all debts: very high risk
- termination: death of owner or decision to stop operating
- few business operate this way: high risk of personal liability , incorporation has
tax benefits
Partnership - ANSWER A contract by which the parties, in spirit of cooperation,
agree to carry on an activity, including the operation of an enterprise, to
contribute thereto by combining property, knowledge, or activities and to share
among themselves any resulting pecuniary profits (monetary profits)
General partnership: partnership agreement - ANSWER - a private contract
signed by all of the partners which specifies the roles, contributions, function
and share of profits of each partner.
-This contract should also provide for a mechanism to buy/sell/transfer the
interests of a partner.
- Partners may be human beings or corporations
Partnership Liability - ANSWER all partners liable for 100% of debts, business
creditors can go after personal assets of partners
Solidary (joint, several) liability - ANSWER Creditor can sue all for 4 partners or
any individual partner for liability
limited partnership - ANSWER partnership in which only one partner is required
to be a general partner, special partners do not have personal liability for debts
Corporation - ANSWER legal persons and have similar rights to those of human
beings (natural persons)
o Own property
o Enter into contracts
o Have employees
o Since a corporation cannot speak or act for itself:
(it is a legal person, not a natural person), corporations make decisions through
mandataries (directors, officers or managers) based on rules of Mandate
, Corporation: name registration - ANSWER the corporation must file an annual
registration form (online) with the government of which province in which the
company has a physical office, and with the Federal government if incorporated
federally
Shareholders - ANSWER owners of the company; buy shares/invest, do not
manage the company, can be legal persons or human beings
principle function of shareholders - ANSWER shareholders vote to elect the
directors at annual shareholders meeting
Directors - ANSWER mandataries of the company:
-The rules of mandate apply with director relationship with company
- Have full power to manage all affairs of the company: issue shares, dividends,
raise/borrow money
- Can delegate day-to-day management of the company to officers
- Can be shareholder and/or officer of the company
Officers - ANSWER responsible for the day-to-day running of the company. They
are mandataries of the company
- Officers are the senior employees of the company e.g. CEO, COO, CFO
Shareholders liability - ANSWER Limited liability: only liable to pay for their
shares, not personally liable for company debt
Common shares / class A shares - ANSWER If company only has one class of
shares they are referred to as a Class A shares
historically: common shares
- Holders of common shares are generally entitled to the following three rights:
1. Right to vote
2. Right to receive dividends (surplus of profits) - if declared by company
3. Right to receive residual property (if company is liquidated)
Issuing shares - ANSWER Equity financing: shares are issued to generate
working capital for the company, the company does not acquire additional debt,
no obligations to pay shareholders back, more shares means dilution of votes
