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Chapter 7 - Partnership & Corporation

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Business Law I

6- Partnership &
Corporation
DR. ABDELRAHMAN MOHAMED SAYED
Entrepreneurship

 An entrepreneur is a person who forms and


operates a business.
 An entrepreneur may start a business by him- or
herself or may cofound a business with others.
 Most businesses started by entrepreneurs are
small, although some grow into substantial
organizations.
Entrepreneurship

 A person who wants to start a business must decide


whether the business should operate as one of the major
forms of business organization
 The selection depends on many factors, including the
ease and cost of formation, the capital requirements of
the business, the flexibility of management decisions,
government restrictions, personal liability, tax
considerations, and the like.
Forms of Conducting Business in
Egypt
 Entrepreneurs contemplating starting a business have many options when
choosing the legal form in which to conduct the business. Each of these
forms of business has advantages and disadvantages for the entrepreneurs.
The major forms for conducting businesses and professions in Egypt are as
follows:
• Sole proprietorship
• General partnership
• Limited partnership
• Partnership limited by shares
• Limited liability company
• Joint-stock Company
• One-person company
Limited & Unlimited Liabilities

 Limited Liability; the business owners are financially


responsible for only the amount of money they have put into
the business.

 Unlimited (Personal) Liability; the business owner or owners


are personally responsible for all of the debts of the business,
no matter what the value.
Forms of Conducting Business in Egypt

Unlimited Liabilities
Limited Liabilities

Partnership Limited
Sole General Limited Joint-stock One-person
limited by liability
proprietorship partnership partnership Company company
shares company
1- Sole Proprietorship

 A sole proprietorship is the simplest form of


business organization.
 There is only one owner of the business, who is
called the sole proprietor.
 There is no separate legal entity. Many small
businesses—and a few large ones—operate in
this way.
1- Sole Proprietorship

 Operating a business as a sole proprietorship has


several major advantages, including the following:
• Forming a sole proprietorship is easy and does not cost
a lot.
• The owner has the right to make all management
decisions concerning the business.
• The sole proprietor owns all of the business and has the
right to receive all of the business’s profits.
• A sole proprietorship can be easily transferred or sold if
and when the owner desires to do so; no other approval
(e.g., from partners or shareholders) is necessary.
1- Sole Proprietorship

 This business form has important disadvantages, too. For


example,
 A sole proprietors’ access to the capital is limited to
personal funds plus any loans he or she can obtain and,
 A sole proprietor bears the risk of loss of the business;
that is, the owner will lose his or her entire capital
contribution if the business fails. In addition, the sole
proprietor has unlimited personal liability
 Therefore, creditors may recover claims against the
business from the sole proprietors’ personal assets (e.g.,
home, automobile, bank accounts).
2- General Partnership (ordinary
partnership)
 An association of two or more persons to carry on as
co-owners of a business for profit.
 The formation of a general partnership creates certain
rights and duties among partners and between the
partners and third parties. These rights and duties are
established in the partnership agreement and by law.
 General partners, are personally liable for the debts
and obligations of the partnership.
2- General Partnership

Liability of General Partners


General partners must deal with third parties in
conducting partnership business. This often includes
entering into contracts with third parties on behalf of the
partnership. Partners, employees, and agents of the
partnership sometimes injure third parties while
conducting partnership business. Partners of a general
partnership have personal liability for the contracts and
torts of the partnership.
. General partners have unlimited personal liability for the
debts and obligations of the partnership.
2- General Partnership

Dissolution of a General Partnership


 The duration of a partnership can be a fixed term (e.g., five years)
or until a particular undertaking is accomplished (e.g., until a real
estate development is completed), or it can be an unspecified
term. A partnership with a fixed duration is called a partnership for
a term. A partnership with no fixed duration is called a partnership
at will.
 A partnership that is formed for a specific time (e.g., five years) or
purpose (e.g., the completion of a real estate development)
dissolves automatically on the expiration of the time or the
accomplishment of the objective. Any partner of a partnership at
will (i.e., one without a stated time or purpose) may rightfully
withdraw and dissolve the partnership at any time.
2- General Partnership

Dissolution of a General Partnership


 Wrongful Dissolution
A partner has the power to withdraw and dissolve the partnership at any
time, whether it is a partnership at will or a partnership for a term. A partner
who withdraws from a partnership at will has the right to do so and is
therefore not liable for dissolving the partnership. A partner who withdraws
from a partnership for a term prior to the expiration of the term does not
have the right to dissolve the partnership. The partner’s action causes a
wrongful dissolution of the partnership. The partner is liable for damages
caused by the wrongful dissolution of the partnership.
3- Limited Partnerships

 A limited partnership, or special partnership, has two types of partners:


(1) General Partners, who invest capital, manage the business, and are personally
liable for partnership debts, and
(2) Limited Partners, who invest capital but do not participate in management and
are not personally liable for partnership debts beyond their capital contributions.

A limited partnership must have one or more general partners and one or more
limited partners.
Liability of General and Limited
Partners
 General partners and limited partners of a limited partnership have different
degrees of liability, depending on the circumstances.
Liability of General Partners
The general partners of a limited partnership have unlimited liability for the
debts and obligations of the limited partnerships. Thus, general partners have
unlimited personal liability for the debts and obligations of the limited
partnership. This liability extends to debts that cannot be satisfied with the
existing capital of the limited partnership.
Liability of General and Limited
Partners
 Liability of Limited Partners
Generally, limited partners have limited liability for the debts and obligations of
the limited partnership. Limited partners are liable only for the debts and
obligations of the limited partnership up to their capital contributions, and they
are not personally liable for the debts and obligations of the limited
partnership.
Management of a Limited
Partnership
 General partners have the right to manage the affairs of the limited partnership.
On the other hand, as a trade-off for limited liability, limited partners give up
their right to participate in the control and management of the limited
partnership. This means, in part, that limited partners have no right to bind the
partnership to contracts or other obligations.
 A limited partner is liable as a general partner if his or her participation in the
control of the business is substantially the same as that of a general partner, but
the limited partner is liable only to persons who reasonably believed him or her
to be a general partner.
4- partnership limited by shares

 In a partnership limited by shares at least one partner must assume unlimited


liability for the debts of the partnership. The liability of the other partners is
restricted to their respective capital contributions.
 The contributions in this partnership are negotiable shares.
 Partnerships limited by shares are subject to most provisions which apply to joint
stock companies, apart from capital participation requirements and certain
matters concerning the board of directors. partnership can convert into a joint
stock company in Egypt if certain requirements are met.
 The address of the company will consist of the name or names of one or more
of the general partners
Corporate Formation and Financing

 Corporations have existed since medieval Europe when individual charters were
granted by the ruler, usually a monarch (king or queen). A corporation is owned by
its shareholders, who elect members of the board of directors to make policy
decisions and who, in turn, employ corporate officers to run the day-to-day
operations of the corporation.
 Corporations are the most dominant form of business organization in the United
States, generating more than 85 percent of the country’s gross business receipts.
 Corporations range in size from one owner to thousands of owners. Owners of
corporations are called shareholders. Shareholders are owners of a corporation
who elect the board of directors and vote on fundamental changes in the
corporation.
5- Limited Liability Companies
(LLCs)
 A LLC must be established by two or more shareholders and no more than 50
shareholders.
 The shareholders may be either judicial persons or natural persons. LLCs may be
fully owned by foreigners as a general rule, with few exceptions.
 With respect to the management of LLCs, it is carried out by managers and not
a board of directors. Such managers may be either judicial persons
(represented by individuals) or appointed individuals.
 Quotas, commonly referred to as shares, must all be of an equal value.
Although the law does not prescribe a minimum value for such quotas.
 Any partner can sell his or her quotas to outsiders, given that he has already
offered them to the other partners and they declined to buy them.
6- Joint Stock Companies (JSCs)

 The Egyptian joint stock company is a company whose capital is


divided into shares; the liability of each shareholder is limited to
the value of his or her shares, and the shares can be traded on the
stock exchange.
 The number of shareholders in a JSC must be no less than three
and up to any number of shareholders. The name of the joint stock
company should indicate the activity or objectives of the
company but may not include the name of any shareholder
unless such name is a registered trade name.
6- Joint Stock Companies (JSCs)

 A JSC may be listed on any stock exchange and may issue bonds or
other financial instruments that could be offered to the public. The
shares of the JSCs may be offered to public subscription, if so decided
by the shareholders.
 Shares can only be issued after receiving the approval of the Egyptian
Financial Supervisory Authority (“EFSA”). These shares may be also
registered with the Stock Exchange, subject to certain requirements.
 A joint stock company is managed by a board of directors comprising at
least three members. The members will be elected by the general
shareholders’ meeting; the board subsequently elects the chairman and
the management director.
7- Single Person Limited Company

 Law no. 4/2018 published in the Official Gazette on 16 January 2018


established a new kind of limited company, which is Single Person
Limited Company.
 A single natural or juristic person may establish a single person company.
Single person companies are limited liabilities companies subject to the
rules governing the latter unless otherwise stipulated in the law.
 For certain cases where the corporate veil of such a company can be
pierced, and for the founder of the single person company to become
liable for the company’s liabilities. Such cases include liquidating the
company in bad faith and the failure to separate between the
founder’s financials and the financials of the company.
Thank You

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