2 Chapter 2 _ Types of Companies

8/18/2019 2 Chapter 2 _ Types of Companies

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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

2 Chapter 2 _ Types of Companies

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