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Sole trade $ sole proprietorship
• Simplest form of %usiness organization
• Simplicity and control
• &asy to organize $ minimal regulatory compliance
• 'o many person consists this ind of %usinessorganization*
• +hat are the conse,uences of this %usinessorganization* d!antages and disad!antages
• Compliance re,uirements• .egulatory purposes
• Ta/ purposes
• .eal party in interest
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• Business name 2 refers to any name that is di3erentfrom the true name of an indi!idual hich is used orsigned in connection ith her$his %usiness"
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Partnership
• +ho may consist a partnership*
• 'o many persons are re,uired to constitute apartnership*
•
'o ill they constitute a partnership*• +hat is the purpose of their aggregation$comingtogether as partners*
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4enition
• #t is a contract %eteen to or more person to engagein a prot maing acti!ity"
• #t is an aggregate of indi!idual traders ho ha!e cometogether for a oint0 prot-maing %usiness purpose"
• +hat go!erns the rights and o%ligations of thepartners*
• 4oes the partnership ha!e a separate and distinctpersonality from the partners*
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Partnership
• To or more persons %ind themsel!es to contri%utemoney0 property or industry to a common fund ith theintention of di!iding the prots among themsel!es"
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5egal %asis of partnership
• #t is essentially a matter of contract"• .ights and o%ligations are a matter of contract"
•
+hat is the form of contract*
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6ormation of a partnership
• #nitial formalities 2 hen does a partnership %egin to e/ist*
• Compliance re,uirements• B1
• Ta/ return
• 'o do you sue a corporation*• Supreme Court 7eneral Ci!il Procedure .ules 899: the partnership may %e sued
for con!enience purposes"
• 0999
• 99
• +hat is the e3ect if a partnership e/ceeds the num%er of person*
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&lements of a partnership
• &/isting relationship
• Beteen persons ho are
• Carrying on a %usiness in common and
•'a!e a !ie to prot"
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Carrying on a %usiness
• Business 2 e!ery trade0 occupation or profession"
• #s it possi%le that a single transaction amount to the
carrying of a %usiness*• ?es"
• United 4ominions Corporation !" Brian Pty 5td" (>@A:)• single ad!enture may or may not0 depending upon its scope0 amount
to the carrying on a %usiness"
• #n other ords0 if that single transaction is the rst of the ould %e
some or many transactions0 then an association of persons could %ecarrying on a %usiness"
• Carrying on a %usiness• &lement of continuity or repetition in contrast ith an isolated
transaction hich is not to %e repeated"
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Commonality
• The partners ho are running the %usiness must do sofor all the partners and not ust for themsel!es"
•
Suppose and B are partners engaged in real estate%usiness" sold a property oned %y his ife %ut didnot account for the prot he made in the sale" Can e!ie the transaction to %e that of the partnership*
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Prot maing acti!ity
• Can there %e a partnership if the %usiness ere at aloss*
•
#f there is a clu% or society engaged in charity0 is there apartnership*• -1o"
• +hen can a presumption of partnership e/ist*•
Cri%% !" Dorn (>@>>)• The agreement as for each to tae half of the gross proceeds
of the e!entual produce"
• Similar to a lease"
• &!entual prots %elong to .ano not Cri%%"
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Perspecti!es
• .ights and o%ligations of Partners among themsel!es• #ndustrial and general partner
• .ights and o%ligations of Partners to third persons
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Partnership and outsiders
• &ach partner is %oth a principal and agent of the rmand the partners"
• Transactions entered into %y one partner0 ithin the usual scope of the rmEs %usiness ill normally %ind %oth the rm
and the partners"• re partners re,uired to specically authorize a partner to
enter into a transaction*
• 1o0 e/cept
• #f the partner as acting ithout authority yet the counter-party nosthis; or
• The other party does not no or %elie!e that the person he is dealing ithis a partner in the %usiness"
• Fstensi%le partner
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Types of partnership
• 7eneral and 5imited
• 7eneral - partners contri%ute all the property hichactually %elongs to them to a common fund0 ith theintention of di!iding the same among themsel!es0 as
ell as all the prots hich they may ac,uire thereith"• 5imited partnership is one formed %y to or morepersons0 ha!ing as mem%ers one or more generalpartners and one or more limited partners" The limitedpartners as such shall not %e %ound %y the o%ligations
of the partnership"
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5ia%ility of 7eneral partners forde%ts of the partnership
• 7eneral partners do not ha!e limited lia%ility"
• #f the rmEs assets are insuHcient0 each partner is lia%le to the full e/tent ofher or his personal assets for de%ts and other o%ligations incurred %y apartnership"
• The nature of lia%ility of each partner is
• solidary or oint"• This means that each partner is lia%le not ust for his share of the de%t %ut for the
hole amount"
• #f you are a creditor of a rm0 if the partnership of 0 B and C (ith C %eingthe more nancially ell o3)0 ho ould you sue*
• +hile a creditor has a choice of suing C alone for the de%t of the partnership0 the%etter approach is to sue for all the partners" The reason is that the o%ligation of each
partner is solidary0 if the other partners are not impleaeded and a udgment isrendered0 the creditor ill %e %arred from pursuing any su%se,uent proceedingsagainst the other partner under the rule on res judicata"
• Suppose C ran o3" Fnly and B are left" re they o%liged to pay for theshare of C in the de%t*
• ?es" gain0 the rule on lia%ility is solidary"
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5imited partnership
• 5imited partners are in!estors ho do not normallyin!ol!e ith the management of the partnership"
• d!antage• The limited partners enoy %eing ,uarantined from the de%ts
and o%ligations of the partnership e/cept hen he$she actedith ostensi%le authority"
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Fstensi%le or pparent uthority
• Partners and people ho hold themsel!es out aspartners0 or ho consent or ac,uiesce to %eing heldout0 may %e lia%le in contract or tort if
>" There is representation that the person is a partner0 either
%y that person or someone else;8" Credit is gi!en to the rm; and
J" That credit is gi!en in reliance on that representation"
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5ynch !" Sti3 (>@=J)
• 5ynch as a salaried partner in a la rm"
• Sti3 had %een a client for many years and 5ynch is the person-in-charge of his legal a3airs"
• Sti3 instructed 5ynch to sell his properties"
• Then 5ynch remitted the proceeds to +illiamson0 the rmEspartner0 ho apparently misappropriated the money"
• Sti3 sued 5ynch"
• #s 5ynch lia%le considering he is merely a salaried partner*
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?es" 5ynch as held out as a partner" Thus0 e!en though he is nota partner0 the rmEs representation as that he is a partner0 tohich he consented0 and this fact as relied upon %y Sti3"
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.elationship %eteen the partners
• partnership is essentially a duciary relationship %ased on mutual trust and condence %eteenpartners"
• F%ligations of partners• s duciaries0 partners ha!e mutual rights and duties hich generally re,uire them to act in good faith and for
the common good of the partnership"
• partner cannot %e admitted ithout the consent of all the partners or as specied in thecontract"
• Partners are entitled to %e indemnied for payments and lia%ilities made or incurred in conductingthe rmEs %usiness"
• .ule of
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Partnership property
• Basic rule• ll property that as originally %rought into the partnership0
or is ac,uired later0 is partnership property"
• Presumption on the use of partnership money
• #f a property is %ought using partnership money0 the property ispresumed oned %y the partnership"
• 4istinguish partnership property from property %eingused in the %usiness"
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'ar!ey !" 'ar!ey (>@K9)
• Because of his illness0 'arold entered into a contract ofpartnership ith his %rother 'orace"
• 'arold agreed to pro!ide the land0 stoc and machinery hile'orace agreed that he and his sons ould pro!ide sill andla%our"
• The arrangement ould gi!e 'oraceEs sonEs e/perience inrunning a roperty and ould eep the land operating until'aroldEs son as old enough to tae o!er it"
• The Partnership e!entually dissol!ed"
• 'orace claimed that he oned half of the land" #s he correct*
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1o" The partnership had only %een formed to eep 6onthillgoing until 'aroldEs son as old enough to run it himself"
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#ncoming and outgoing partners
• &!ery time a ne partner is admitted or partner retires0resigns or dies0 a ne partnership relationship iscreated"
• 5ia%ility of an outgoing partner• 'e is still lia%le for de%ts incurred after oining %ut %efore
lea!ing the rm"
• .e,uirements for outgoing partners• ny change in partnership mem%ership0 notice must %e sent
to all creditors and clients"
• Until notice is gi!en0 a person is entitled to rely on theapparent authority of the outgoing partner"
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Termination and 4issolution ofPartnership
• Since a partnership is a contractual relationship0 thepartners can specify that the partnership ill continueto e/ist e!en if there is a change is mem%ershipcomposition"
• 7eneral .ule• Partnership dissol!es if a partner dies0 retires or %ecomes
%anrupt"
• .ecall• +hen a partnership e/ceeds the num%er of partnersL +hat is
the legal e3ect*
• #t is dissol!ed %y operation of la"
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4issolution of a partnership %y courtorder
• Petition %y one or more partners %ased on the folloinggrounds
>" 5ac of capacity due to mental illness;
8" Permanent incapacity;
J" +illful or persistent %reach of partnership agreement;
=" The %usiness can only %e carried on at a loss; and
:" Must and e,uita%le grounds"
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Conse,uences of dissolution
• .e,uirement• 1otice
• +inding up
• #f %usiness is continued ithout inding up0 hat is thelegal e3ect
• Futgoing partners are still entitled to the net prots of thepartnership"
• +ho settles the a3airs of the partnership*• The partners; or
• recei!er"
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Concurrence and preference ofcredits
• Frder of preference
>" 4e%ts and e/ternal lia%ilities
a" Paid through prots then through capital;
8" .epayment of ad!ances to partners;
J" .epayment of capital to partners; and=" Share in the remaining assets in the same proportion as
the partners had shared prots"
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4istinctions
Partnership Corporation
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Similarities
• Both are composed of group$s of persons
• Capitals are deri!ed from their components
• There is distri%ution of prots (proprietary)
•
Both act only through their agents• Both can %e organized only here there is a laauthorizing their organization"
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Business trust
• Fne person con!eys a property to another for the%enet of a %eneciary"
• #t in!ol!ed the appointment of a trustee %y a trustor forthe administration0 holding0 management of funds
and$or properties of the trustor %y the trustee for theuse0 %enet or ad!antage of the trustor or of otherscalled %eneciaries"
• 5egal title is ith the trustee ho holds and managesthe property for the %enet of mem%ers0 ho are
%eneciaries of the trust ith e,uita%le interests0usually represented %y transfera%le certicates"
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Trust
Trustor
Trustee
Thirdperson
Thirdperson B
Beneciaries
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Unincorporated not-for-protassociation
• Social or sporting clu%
• 1ot for prot
• ny prots are used solely for the purposes for hichthe association as formed
• 4istri%ution of prots to mem%ers is prohi%ited
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Corporate forms of association
• Corporations formed %y .oyal Charger
• Corporations sole
• Corporations formed %y special statute
•
Corporations formed %y registration• Cooperati!e
• #ncorporated associations
• Trade unions
• companies
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#ncorporation of an ssociation
• &ligi%ility
>" 5aful purpose0 not for prot;
8"
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Procedure
>" pplication for registration
8" ppro!al of statement of purposes and rules
J" Corporation name 2 use of #ncorporated or #nc"
=" 5odging of the application and statement of purposesand rules"
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Conse,uence
• The association %ecomes a separate legal entity0 lie anordinary company"
• 1ote• property pre!iously oned %y or on %ehalf of an
unincorporated association !ests aut9matically in theincorporated association"
• 5imited lia%ility
• The mem%ers ha!e no right or interest in the associationEs
property"
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.ules
• &,ui!alent of Constitution• Statement of Purposes
• .ules to regulate its internal a3airs
• .eplacea%le rules e,ui!alent•
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Classication of companies
• ccording to lia%ility of mem%ers• 5imited %y shares
• 5imited %y guarantee
• 1o lia%ility
• unlimited
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5imited %y shares
• 6eatures• #n the e!ent that a company does not ha!e suHcient assets to
meet all its de%ts0 each mem%er is only lia%le for unpaidshares
•
5imited or 5td"
• Creditors usually re,uire personal guarantee
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5imited %y guarantee
• mem%er is not re,uired to contri%ute unless and untilthere is a shortfall hen the company is ound up"
• The constitution must prescri%e the amount ofguarantee"
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1o lia%ility
• pplies only to mining companies• Sole purpose is mining
• Suppose the company needs to raise capital0 hat
should it do*
• #f the shareholders do not pay0 hat is the remedy*
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Companies classied %y pu%licstatus
• Pu%lic• ny company that is not proprietary"
• 5isted
• unlisted
• Proprietary• Small; or
• 5arge"
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.e,uisites of proprietary
>" 'a!e no more than :9 non-employee shareholders
8"
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4i3erences %eteen pu%lic andproprietary
• 1um%er of directors
• the internal rules that apply
• %ility to raise funds
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d!antages of classication ofproprietary companies
• +hat are the ad!antages of the classication*
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Change in status
• +hat are the alloed con!ersions*• 7i!e the re,uirements