Partnerships, Corporations and Sole
Proprietorships
by Jack W. Hope
A sole proprietorship is the simplest form of business organization. If
you carry on business under any name other than your own
name you are required to register your business name with
the Ministry of Consumer and Commercial Relations. You
will be personally liable for any business debts.
A partnership must also register with the Ministry of Consumer
and Commercial Relations if it is going to carry on business
under a name other than the names of all the partners. Partners
are also personally responsible for the business debts. In
fact, each partner is personally responsible for all of the
debts of the business, not just for his or her share. It
is also important to settle the respective obligations of
the various partners by way of a partnership agreement so
that each partner knows what he or she is entitled to and
what is expected of him or her.
There is a special type of partnership known as a Limited
Partnership, which must be registered with the Ministry of
Consumer and Commercial Relations in order to exist. A
Limited Partnership consists of one or more limited partners
and one or more general partners. The general partners
are partners in the same sense as in an ordinary partnership
and are personally liable for all of the debts of the partnership. The
limited partners, however, are investors who take no part
in the management or control of the business of the Limited
Partnership. They are only responsible for the amount
of money they have put in, or have promised to put in, in
accordance with a declaration which must be filed with the
Ministry of Consumer and Commercial Relations. If a
limited partner does participate in the control or management
of the business of the partnership, however, he or she can
lose the status of limited partner and become a general partner
and, as a result, become personally liable for the debts
of the partnership.
A corporation must be set up and properly registered with
the Ministry of Consumer and Commercial Relations. It
can be established by one person or by a group of people
who will then operate as the directors and officers of the
corporation. Those who own the corporation are known as shareholders. The
directors, officers and shareholders can be different people
or can all be the same people or even the same person if
it is a corporation owned and run by one person. The advantage
of incorporation is that, in most cases, the directors, officers,
or shareholders of the corporation are not responsible for
the corporation's debts. Accordingly, if the business
of a corporation fails, the owners of the corporation are
not generally personally responsible for the money the corporation
owes to its creditors. There are certain exceptions
to this principle. For example, if there has been any
fraud involved in a transaction, corporate status will not
protect the guilty party from personal liability. You
will also not be protected from personal liability if you
have personally guaranteed any of the corporate debts, such
as the bank loan or the lease of the business premises. Additionally,
certain tax liabilities and other government obligations
of the corporation can pass through to its operators, managers
or directors, especially in connection with funds that have
been collected by the corporation, such as sales taxes, but
not remitted to the government.
To contact the author, please email jhope@smhilaw.com
The information contained in this message is general
and should not substitute for the advice and counsel of
a licensed lawyer. |
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