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Legal Envi. of Bus
FINAL EXAM (Chapters 17-23, 28) Chp 17
| Question | Answer |
|---|---|
| What are the 3 factors that determine the best form of business? | 1. Taxation 2. Transferability 3. Operations |
| What is the simplest form of business organization? | Sole Proprietorship |
| - A business owned and operated by one person - No legal distinction between the owner and the business - all assets owned by owner, all debts owed by owner - unlimited personal liability - may use a trade name (DBA) | Defining characteristics of a sole proprietorship |
| Another name for a sole proprietorship: | DBA = "doing business as" |
| - All income/loss and other tax consequences are attributable to the owner - Can be hard to distinguish between "business" expenses, which are deductible and "personal" expenses, which are not - IRS scrutinizes these issues hard - "hobby loss" provision | Tax consequences of a sole proprietorship |
| What are the strengths of a sole proprietorship? | - Easy to start up - No issues regarding control - tax benefits: no double taxation, simplier |
| What are the weaknesses of a sole proprietorship? | - Harder to raise capital - Unlimited personal liability of owner - Business is a "cult of personality" of owner - transferability is problematic |
| Owner of a business, trademark, etc. licenses others to operate their own independent business using the business;s name, marks, etc. | Franchisor |
| Independent business which licenses another's trademark, business etc. | Franchisee |
| Types of franchises: | 1. Distributorship 2. Chain-style operation 3. Manufacturing Arrangement |
| Retail outlet for franchisor's product, operated by franchisee (Car Dealership) | Distributorship |
| Franchisee operates using franchisor's name and imprimatur as a member of a select group of retail outlets for franchisor's products (McDonalds) | Chain-style operation |
| Franchisor licenses the recipe franchisee cooks and cells the goods (Coca-Cola Bottler) | Manufacturing Arrangement |
| Who regulates franchising, to protect franchisees? - requires franchisors to operate in food faith, transparency, disclosures etc. | FTC (Federal Trade Commission) |
| Outlines obligations and duties of franchisor and franchisee | Franchise Contract |
| What is included in the Franchise Contract? | -payment for franchise, by franchisee to franchisor -business premises—location, bought or leased, size, etc. -exclusive rights to location/territory -business organization of franchisee -quality control over products -pricing |
| Franchise contract should specify the duration of the franchise, any renewal thereof, and conditions under which franchise can be ________ early, such as breach of the agreement or insolvency of the franchisee | Terminated |
| An agreement, express or implied, between two or more persons to carry on a business for a profit. | Partnership |
| --defined by state law --created by a written agreement between two or more persons (articles of partnership) --creates a separate legal entity from the partners --not a taxable entity --joint and several liability for debts and torts | Defining characteristics of Partnerships |
| ______ ________ ___is a uniform law, adopted in 49 states, that describes partnership rights/responsibilities in absence of express agreement between partners. | Uniform Partnership Act (UPA) |
| Two or more people may jointly own property (undivided interest) but this does not make them “partners” | Joint Ownership |
| -compensation -inspect books and records -accounting for profits -property rights | Rights of Partners |
| two or more persons hold themselves out as partners, third parties act as if they are partners, may be held to be “partners by estoppels”—stuck with obligations of partners but not rights of partners | Partnership by estoppel |
| Each partner is a ________. An agent of the partnership who owes the entity the highest duty of loyalty, confidentiality, good faith and fair dealing | Fiduciary |
| _______ ____ of partners may not be waived or diminished in partnership agreement | Fiduciary Duties |
| __________ is the removal/dismissal/termination of one partner—may involve a new partner coming in, or simply going from six partners to five | Dissociation |
| -partner asks to leave -event specified in partnership agreement (i.e., partner turns 70 years old) -unanimous vote of other partners -court order -bankruptcy of partnership | UPA's rules for Dissociation |
| Partnership Termination = | Dissolution |
| partnership ceases to exist—can be invoked by a partner, or by law in event of death of a partner of bankruptcy of partner or partnership | Dissolution |
| simply the sale of a partnership interest from one person to another | Transfer of partnership interest |
| Transfer of partnership interest is NOT a __________ or _________ | dissociation or termination |
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