Week 4 Small Business Midterm

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Questions and Answers

What is the legal name for a sole proprietorship?

DBA Name

Business Name

Trade Name

Owner’s Name (correct)

Who is generally responsible for all day-to-day activities in a sole proprietorship?

Board of Directors

Owner (correct)

Partners

Shareholders

What type of business organization is a partnership?

Corporation

Nonprofit Organization

Limited Liability Company

Unincorporated business (correct)

What are the two main types of partnerships?

General Partnership and Limited Partnership Signup and view all the answers

When a partnership is formally established, what is the written agreement called?

Articles of Partnership Signup and view all the answers

What is required to form a general partnership?

Understanding to share profits and losses Signup and view all the answers

What is the main benefit for a business of having a Business Number (BN)?

To streamline interactions with the federal government Signup and view all the answers

When does a business need to obtain a Business Number (BN) in Ontario?

After making over $30,000 and needing to charge tax Signup and view all the answers

Why might a large business benefit from having a Business Number?

To raise capital from investors more easily Signup and view all the answers

What distinguishes the Business License/Number requirements for Sole Proprietors/Partnerships from Corporations?

Corporations require both a Business License and a Business Number Signup and view all the answers

How can having a Business Number help in deferring personal income tax payments?

By allowing to keep money in the business Signup and view all the answers

What is the key advantage of using the CRA’s Business Registration Online (BRO) service to obtain a Business Number?

It simplifies the process of registering for a Business Number Signup and view all the answers

What is the main purpose of a limited partnership?

To allow people to invest in a business without managing it Signup and view all the answers

Which entity is reported as employment income based on the text?

General partnership Signup and view all the answers

What is the advantage of continuity mentioned in the text about corporations?

Ownership changes without affecting business operations Signup and view all the answers

In a limited partnership, who is responsible for the business liabilities?

General partner Signup and view all the answers

Why are corporations considered separate and distinct entities from their owners?

To protect owners from personal liability Signup and view all the answers

What is required to form a corporation according to the text?

Articles of incorporation, registered address, board of directors Signup and view all the answers

What type of corporation allows for wide public distribution of stock shares?

'Broadly held' Corporation Signup and view all the answers

Which entity's purpose is not to distribute profit to members, directors, or officers?

'Not-for-Profit' Corporation Signup and view all the answers

What is the main difference between a sole proprietorship and a partnership?

The number of owners involved Signup and view all the answers

What is the key characteristic of a general partnership?

Involvement of all partners in business operations Signup and view all the answers

Which statement about profits in a sole proprietorship is accurate?

Profits are retained by the owner Signup and view all the answers

What is the defining requirement to establish a partnership?

An agreement to share profits and losses Signup and view all the answers

Which type of partnership involves partners with limited involvement in business operations?

Limited partnership Signup and view all the answers

What key factor distinguishes a sole proprietorship from other business entities?

The owner's decision-making authority Signup and view all the answers

Which aspect makes a partnership easier to establish compared to a corporation?

Absence of legal formalities to start Signup and view all the answers

What kind of liability are general partnerships exposed to according to the text?

Unlimited liability Signup and view all the answers

What is the main purpose of a limited partnership as described in the text?

To invest in a business without managing it directly Signup and view all the answers

What is a key benefit of incorporating a business mentioned in the text?

Limited personal liability Signup and view all the answers

Study Notes

Business Structures

Sole Proprietorship: an unincorporated business owned by one person or married couple, with the legal name usually being the owner's name.
Characteristics: owner makes all important decisions, responsible for day-to-day activities, retains income earned, and profits are taxed as personal income.
Advantages: easy to create, limited initial costs, and can be launched quickly.

Partnerships

Default business organization: when two or more people work together who are not legally married.
Voluntary association: to conduct business for profit, with two required elements: common interest to conduct business together and understanding to share profits and losses.
Types: general partnership and limited partnership.

General Partnership

Partners participate fully: in running the business and share in profits or losses.
Legal documents: not required to form a partnership, but articles of partnership can set forth how the partnership will be run.
Unlimited liability: every partner is jointly liable for the partnership's debts and obligations.

Limited Partnership

Two types of partners: general partner who runs the business and is responsible for liabilities, and limited partners who have limited involvement and losses limited to their investment.
Main purpose: to allow people to invest in a business without managing it and without risking more than their investment.

Corporations

Legal entity: separate and distinct from its owners, can own assets and incur debt.
Characteristics: can be created for a limited duration, typically expected to have perpetual existence, and has continuity because ownership can be changed without dissolving or affecting business operations.
Must be formed: in compliance with the law of Canada (Federal Corporation) or of the province (Provincial Corporation).

Articles of Incorporation

Required elements: business name, whether the company is for-profit or nonprofit, founders' names, company's purpose, number of shares issued initially, and par value of shares.

Types of Corporations

Not-for-Profit (NFP) Corporation: purpose is not to distribute profit to members, directors, or officers, but to generate profit used to further the goals of the NFP.
Governmental Corporation: not organized for profit, does not have shareholders, and operates under different statutes than business corporations.
Business Corporations: two main types - broadly held (or public) and closely held (or private) corporations.

Why Incorporate?

Legitimize business name and reputation: incorporate to establish a reputable business name.
Separate personal assets from business liabilities: incorporate to protect personal assets.
Grow a large business: incorporate to grow a business that can be sold to other owners.
Lower corporate tax rates: incorporate to take advantage of lower corporate tax rates.
Raise capital from investors: incorporate to raise capital from investors.
Borrow money at lower interest rates: incorporate to borrow money at lower interest rates.
Sell shares: incorporate to sell shares to others.
Defer paying personal income tax: incorporate to keep money in the business to defer paying personal income tax.

Business Number and HST Number

Business Number (BN): a unique program account identifier with 9 digits, associated only with the business.
Streamlines dealings with federal government: a business number streamlines how the business deals with the federal government of Canada.
Issued by CRA: the business number is issued by the Canada Revenue Agency (CRA).
Registering for a business number: the easiest way to register for a business number in Ontario is to use the CRA's Business Registration Online (BRO) service.

Business License/Number Requirements

Sole Proprietor/Partnerships: depends on the industry, but no BL (Master Business Licence) / BN is required for tax purposes, given by CRA. A business BN is required once making over $30,000.
Corporations: do require a BL/BN.

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Description

Learn about the fundamentals of sole proprietorship, an unincorporated business owned by one individual. Explore how it operates, the responsibilities of the owner, and how profits are taxed. Discover the simplicity of starting a sole proprietorship without legal formalities.