MGMT 2021 – BUSINESS LAW I

Lecture 3: Law of Associations 1 – Sole Proprietor & Partnerships

• SOLE PROPRIETORSHIP: Business owned & managed by 1
individual and is the most popular type of ownership.

• Governed by the Registration of Business Names Act

Organisation and Operation
• Operates as a partnership where owner and business are seen as one.

a. Government Involvement
b. Taxation of Entity
c. Rule of Agency applies if there are employees
Advantages & Disadvantages
• Advantages:
1. Easy establishment and termination
2. Least costly
3. Absolute decision making authority
4. Less Legal restrictions
Disadvantages
1. Unlimited personal Liability
2. Limited skills and resources
3. Limited Capital
4. Boredom/Isolation
5. Lack of continuity

Termination of Business Entity

Partnerships
• Partnerships: Association of 2 or more persons who jointly own a
business for the purpose of making a profit. Not classified as a
corporation. A partnership may be created in several ways and are
governed by both statute and common law.
• Two types:
• 1. General Partnership
• 2. Limited Partnership
• 3. Partnership by Estoppel
Operation
• Creted in 3 ways:
• 1. Express Agreement
• 2. Determination by the Court
• 3. by Estoppel
Advantages
1. Easy to establish

2. Complementary skills

3. Division of profits

4. Larger pool of capital & other resources

5. Ability to attract limited partners

6. Little governmental regulation

7. Flexibility

8. Taxation
Disadvantages

1. Unlimited liability of at least one partner

2. Difficulty disposing of partnership interest without dissolving the

partnership

3. Lack of continuity

4. Potential for personality & authority conflicts

Termination
• Change of partners:

1. Inclusion of new partner

2. Resignation of a partner

3. Buying out of existing partner’s interest

4. If one partner leaves a new partnership is formed among the remaining partners.

5. On the termination of a business the partners will be liable to pay all taxes due
from the firm and to settle all debts.