09 - Corps - Jul 20

MGTA01 Mid-2nd Term Test
Jul 27th 2020 (Next week)
Coverage: Chaps 5 - 8
20 MCQs and 2 SAQs

MGTA01 – Intro to Business
Organising the Business (2)

Corporations & Co-ops
Please read Chapter 9

Main Forms of Organisation
In Canada, the most common forms:
1. Sole Proprietorship
Last
week 2. General Partnership
3. Limited Partnership
4. Corporation
5. Cooperative
Sole Proprietorship: Review
A business owned by 1 person
Sole proprietor:
supplies all the capital ($$)
makes all the decisions
keeps all profits
personally responsible for debts
unlimited liability for debts
General Partnership: Review
A business owned by 2 or more
people acting together
General Partners:
Together supply all the capital ($$)
Jointly make the decisions
Share the profit
Personally responsible for debts
Unlimited liability for debts
Jointly and severally liable
More Complex Forms
Larger, or more complex businesses

may need more capital than 2, 3 or 4
people can supply
The economic system needs ways in

which larger numbers of people can
provide capital
More Complex Forms
There are several ways in which people

who support a business idea can
provide the capital:
Without day-to-day involvement

With limited liability
More Complex Forms
3. Limited Partnership
4. Corporation
5. Cooperative
Unlike sole props & general partnerships:
these do require some paperwork
Limited Partnership
A partnership with 2 classes of partner:

General Partners: as above
Limited Partners: no part in
managing the
business
Creating A Limited Partnership
The general partner(s) must comply
with “the Limited Partnership Act”
Complete documentation to establish the
business as a limited partnership
Documentation identifies:
1. General partners
2. Limited Partners
Creating A Limited Partnership
The law forbids a “limited” partner from
working in a managerial or decision
making capacity

Limited partners, explicitly forbidden
from having decision making authority,
have limited liability
Limited Liability
Limited Partners supply $$$ only
The law assumes that they are not

involved in running the business.
Limited partners can lose: Only the
money they have invested
Limited Partnership: Why?
Appropriate when:
The entrepreneur(s) has the experience
and expertise - but not the capital $$
A single or limited duration project
e.g. Real estate development, film
(example in textbook)
Limited Partnership: Advantage
General partner (the entrepreneur) can
raise capital for a project
Limited partners can make potentially
profitable investment
General partner retains decision
making control (and unlimited liability)
Limited partners can lose only their $$
Corporations
Does require paperwork and fees
Appropriate for businesses that want:

larger number of owners
split between owners / managers
limited liability for owners

Corporation
A legal entity, which runs a business
Responsible for its own debts
Owned by shareholders
Shareholders own it, they don’t run it
Shareholders have limited liability
Corporations
A separate legal being, corporations
have the same rights as people:
The right to own property

The right to hire and fire people
The right to sue and be sued
The obligation to pay taxes
Corporations - How Created
Creating a corporation does
require some paperwork.
The founders
(the "incorporators")
must complete some
legal documents.
A Corporation is created
by the legal authority
(e.g. Prov. of Ontario).
The documents (called the “Articles”):
Identify the “Incorporating Directors”
Provide an address (for tax purposes)
Identify an “Officer” (for tax purposes)
Indicate purpose of the corporation
Indicate number of shares “authorised”
Submit the “Articles” + $500 to Province
The province issues
a “Certificate of
Incorporation”
The "Certificate"
creates the legal
entity which is a
“corporation”
Corporations – Sell Shares
The “Corporation”
can sell shares to
anyone who wants
to invest.
The “shareholders”
own the corporation
Private vs Public Corporations
Private Corporations:
Sell shares only to friends
and family, by invitation
Public Corporations:
Anyone can buy shares,
which are easily available
from the “stock markets
Corporations - Shares
A share is a piece of paper
Shares evidence
ownership
Investor pays $$
for ownership
1 share = 1 vote
Corporations - How Managed
Shareholders (owners of corporation)

elect the Directors to represent them
Directors run the Corporation for owners

Names of Corporations
Must include one of the following:
Limited, Limitée,
Ltd., Ltée.
Incorporated, Inc.
Corporation, Corp.
Signifies business is: Corporation
Owners / Management: not same
Owners' liability: limited
Weakness of Corporations?
Common criticism of corporations:
structures designed by the rich
to protect interests of the rich
intended to make the rich even richer
Ownership according to who supplied the $
Corporations are “amoral” i.e. they are not

governed by a moral code
Weakness of Corporations?
Corporate form of organisation allows
owners with most shares to act in their
own interests
Interests of major shareholders may be

counter to interests of:
customers
employees
smaller shareholders

Cooperatives
Often put forward as solution to

perceived weaknesses of shareholder
corporations
Those who want to work together with

some common economic objective can
form a “co-operative society”

Cooperative: Definition
A business owned by the people who use it
and
whose benefits are distributed on basis of use
Owners called “members”

Co-ops: 3 Distinctive Features
User-Owner: You must use the co-op to

become a member-owner
Democratic Control: One member, one vote

No member can become majority owner
User Benefits: Members share profit on

basis of each member's participation or
contribution to the business.
Creating A Cooperative
Process similar to creating a corporation
Some documents + fees
Province creates the legal entity
Members elect directors
Members have limited liability
Co-op itself has unlimited liability
Co-ops “Better” than Corporations?
Co-ops put forward as more effective than
corporations in ensuring that all owners get
fair reward?
Is this true?
Maybe…. Real Madrid
FC Barcelona
Bayern Munich
Green Bay Packers
Summary & Conclusion
There are several ways that willing people
can support a business idea:
With capital
Without day-to-day involvement
Without unlimited liability
limited partnerships, corporations, co-ops

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MGTA01 Mid-2nd Term Test

Jul 27th 2020 (Next week)

20 MCQs and 2 SAQs

Organising the Business (2)

Please read Chapter 9

Larger, or more complex businesses

The economic system needs ways in

There are several ways in which people

Without day-to-day involvement

A partnership with 2 classes of partner:

Limited Partners supply $$$ only

The law assumes that they are not

Does require paperwork and fees

Appropriate for businesses that want:

The right to own property

Shareholders (owners of corporation)

Directors run the Corporation for owners

Ownership according to who supplied the $

Corporations are “amoral” i.e. they are not

Interests of major shareholders may be

Often put forward as solution to

Those who want to work together with

Owners called “members”

User-Owner: You must use the co-op to

Democratic Control: One member, one vote

User Benefits: Members share profit on

limited partnerships, corporations, co-ops

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