Business Structures: Sole Proprietorship and Partnership

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Questions and Answers

Who is identified as the Capitalist Partner in the partnership between Lenin and Mark?

Neither Lenin nor Mark

Lenin (correct)

Both Lenin and Mark

Mark

What is Lenin's primary restriction as a Capitalist Partner within the same line of business?

He can open a similar business anywhere

He can run a similar business as long as it is larger

He can only invest in new restaurants with Mark

He cannot engage in a similar business without consent (correct)

What type of partner is Mark in the partnership with Lenin?

Consulting Partner

Industrial Partner (correct)

Silent Partner

Capitalist Partner

If Lenin decides to establish a car wash business, what is the status of his action?

He is allowed to do this without consent Signup and view all the answers

What does the Industrial Partner receive as compensation in the absence of a stipulated agreement on profits?

A share considered just and equitable Signup and view all the answers

What percentage of the profits is Jose entitled to in the partnership agreement?

30% Signup and view all the answers

What happens if Mark, the Industrial Partner, decides to open his own restaurant business?

He cannot do so unless the partnership allows it Signup and view all the answers

Which type of partner is liable for debts beyond their contribution in a limited partnership?

General Partner Signup and view all the answers

What kind of contribution does the Industrial Partner make to the partnership?

Skills or industry Signup and view all the answers

If there are no stipulations about profit sharing, how is the profit distributed to a Capitalist Partner?

Based on the amount of capital contributed Signup and view all the answers

What is a disadvantage of forming a partnership?

Liability for co-partners' actions Signup and view all the answers

Which classification of partnership is characterized by partners determining its duration?

Partnership at Will Signup and view all the answers

What role does Santi hold in the partnership?

Industrial Partner Signup and view all the answers

Which of the following represents a potential internal issue in a partnership?

Internal conflicts among partners Signup and view all the answers

What is a key characteristic of a capitalist partner?

Contributes capital and is liable for losses Signup and view all the answers

What happens to the personal assets of general partners if the partnership cannot cover its debts?

They can be utilized to settle debts Signup and view all the answers

What is a significant disadvantage of a sole proprietorship?

Limited ability to raise capital Signup and view all the answers

Under what condition does a partnership begin?

After the execution of a written contract Signup and view all the answers

Which of the following is NOT a requirement for a valid partnership?

Involvement of a sole proprietor Signup and view all the answers

What illustrates the ownership structure of a sole proprietorship?

Operated by a single individual Signup and view all the answers

Which statement is true regarding the profitability of a partnership?

Partners can decide on their own method of profit sharing Signup and view all the answers

Which of these is a key advantage of a sole proprietorship?

Sole enjoyment of profit Signup and view all the answers

What is a defining characteristic of a corporation?

Separate legal entity from its owners Signup and view all the answers

Which option is NOT a typical feature of a partnership?

Unilateral decision-making authority Signup and view all the answers

What is a primary limitation of Mark as an Industrial Partner?

He cannot establish a restaurant business without consent. Signup and view all the answers

What must occur for Mark to start his own business as an Industrial Partner?

He needs consent from Lenin. Signup and view all the answers

Which statement accurately describes a General Partner?

Manages the business and has personal liability beyond contributions. Signup and view all the answers

What entity is created by the operation of law and has the right of succession?

Corporation Signup and view all the answers

Who typically manages the affairs of a corporation?

The Board of Directors or Board of Trustees Signup and view all the answers

When does a corporation officially begin its existence?

When the Securities and Exchange Commission issues the certificate of incorporation Signup and view all the answers

What is one characteristic of a Limited Partner?

Liable only to the extent of their contribution Signup and view all the answers

What is a requirement for Mark to establish any side business while being an Industrial Partner?

He needs consent from Lenin. Signup and view all the answers

Which of the following accurately describes the status of a corporation under the Doctrine of Corporate Entity?

A corporation has a juridical personality separate from its creators. Signup and view all the answers

What is the implication of a corporation acquiring properties in its own name?

The properties are solely the corporation's and not of its directors or stockholders. Signup and view all the answers

Which statement regarding obligations incurred by a corporation is correct?

Obligations incurred are solely the corporation's liabilities. Signup and view all the answers

Why would a civil case filed against the Board of Directors of a corporation for unpaid obligations not be proper?

Because the liability lies with the corporation, not individuals. Signup and view all the answers

What does the Doctrine of Piercing the Veil of Corporate Entity allow?

It permits the courts to disregard the corporate entity in certain situations. Signup and view all the answers

Which of the following types of persons does the law categorize as a juridical person?

A corporation that is duly registered. Signup and view all the answers

Which of the following accurately describes the consequences of a corporation's failure to fulfill its debt obligations?

Only the corporation's assets are at risk for creditor claims. Signup and view all the answers

What principle underlies the legal separation between a corporation and its shareholders?

The corporation is an artificial legal entity with its own rights. Signup and view all the answers

Study Notes

Sole Proprietorship

The oldest, simplest, and most prevalent form of business enterprise
Owned by one person
The sole proprietor bears full liability for all the business's debts and obligations
Offers advantages such as sole enjoyment of profit, complete control, and low capitalization
Disadvantages include sole liability, limited ability to raise capital, and the burden of decision-making

Partnership

Defined as a contract where two or more individuals agree to contribute money, property, or industry to a common fund, intending to share profits
Partners can contribute either capital (money or property) or industry (labor/skill)
A partnership begins from the moment a contract is executed, unless specified otherwise
Essential requisites include a valid contract, lawful purpose, intent for profit-sharing, and at least two legally capable individuals

Essential Requisites of a Partnership

A valid contract must exist
Each partner must contribute money, property, or industry to a common fund
The partnership's business objective must be legal
The partnership's purpose must be profit-driven with intention of profit division among partners
There must be at least two individuals with legal capacity to enter into the partnership agreement

Example of Partnership

Jose, Pedro, and Santi form a restaurant business named Super Trio's Grill
Pedro contributes Php 50,000.00
Jose contributes kitchen utensils
Santi, a culinary arts graduate, acts as the chef
They agree to divide profits as follows:
- Pedro: 60%
- Jose: 30%
- Santi: 10%

Advantages of Partnership

Easily formed by mutual consent
Simple dissolution process
Easy decision-making
Increased capital availability

Disadvantages of Partnership

Partners are liable for co-partners' actions
Personal assets of general partners are liable if the partnership cannot meet its debts
Potential for internal conflicts and disagreements

Partnership Classifications

Liability:
- General Partnership: All partners are liable to the full extent of their personal assets after partnership assets are exhausted
- Limited Partnership: Only the general partner is liable beyond their contribution
Duration:
- Partnership at Will: No fixed duration, termination can be based on partner's will
- Partnership for a Specific Period: Established for a specific term or to complete a particular task

Types of Partners

Capitalist Partner: Contributes capital (money or property)
- Not exempt from losses
- Cannot engage in the same type of business as the partnership unless agreed upon
- Receives a share of profits proportionate to their contribution
Industrial Partner: Contributes industry or skills
- Cannot engage in any type of business for themselves unless the partnership allows
- Receives a just and equitable share of profits
- Not liable for losses
General Partner: Liable beyond their contribution
- Can incur personal liability apart from the partnership
Limited Partner: Liable only to the extent of their contribution
Managing Partner: Manages the partnership's business affairs
- If no managing partner is appointed, all partners share management responsibilities

Example of Capitalist Partner

Lenin and Mark form a restaurant business
Lenin contributes Php 1 million
Mark contributes his culinary skills as the chef
Lenin is the capitalist partner.

Example of Industrial Partner

Lenin and Mark form a restaurant business
Lenin contributes Php 1 million
Mark contributes his culinary skills as the chef
Mark is the industrial partner.

Corporation

A legal construct created by law, possessing the right of succession and authorized powers
It is an artificial being with separate legal personality from its founders
Managed by a Board of Directors or Board of Trustees

Attributes of a Corporation

Created by operation of law
Artificial being
Possesses the right of succession
Has express and implied powers

Management of a Corporation

A corporation, being an artificial being, needs individuals to govern its affairs
The Board of Directors or Board of Trustees manage its operations

Corporate Existence

A corporation commences its existence and juridical personality from the date the SEC issues the certificate of incorporation

Doctrine of Corporate Entity

A corporation has a distinct legal personality separate from its creators
It can acquire property and enter into contracts in its own name
The corporation's assets are not owned by its directors, officers, or stockholders, and vice versa

Example of Separate Legal Personality

ZZZ Corporation, a hotel and restaurant business, suffers damage from a typhoon
Its Board of Directors, through a resolution, contracts YYY Construction, Inc. for repairs
After several payments, ZZZ Corporation defaults
YYY Construction sues the directors in their personal capacities to collect the remaining payment
The lawsuit is improper because the corporation's liability is separate from its officers' personal liability

Doctrine of Piercing the Veil of Corporate Entity

This doctrine is an exception to separate legal personality
It allows courts to disregard the corporate structure and hold individuals liable if there's evidence of abuse, fraud, or unjust actions using the corporate shield for personal gain.

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Description

Explore the fundamental concepts of business structures with this quiz focused on Sole Proprietorships and Partnerships. Understand the advantages, disadvantages, and essential requisites for each business form. Perfect for anyone looking to clarify their knowledge about business ownership.