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33 Cards in this Set
- Front
- Back
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What are the major forms of business organization?
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Sole Proprietorship, Partnership, Corporation, Limited Partnership, Limited Liability Company
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What are the advantages and disadvantages of a sole proprietorship?
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Advantages:
Ease of creation (“start-up”) Owner has total managerial control Owner retains profits Disadvantages: Personal liability for all business debts/obligations Funding limited to personal contributions and loans |
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What are the advantages and disadvantages of a partnership?
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Advantages:
Ease of creation (“start-up”) Partnership income is partner income Business losses qualify for tax deduction Disadvantages: Personal liability for all business debts/obligations, including those incurred by other partners on behalf of partnership |
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What is special about the limited partner in a limited partnership?
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Limited partner’s liability limited to extent of his/her capital contributions
Limited partner has no managerial/operational control over business |
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What are the advantages and disadvantages of a corporation?
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Advantages:
Limited liability for shareholders Ease of raising capital by issuing (selling) stock Disadvantages: “Double-taxation” Formalities required in establishing and maintaining corporate existence |
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How is an s-corporation defined?
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Definition: Business organization formed under federal tax law that is considered corporation, yet taxed like a partnership
Formed under federal law No more than seventy-five shareholders Shareholders must report income on their personal income tax forms |
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HOw is a limited liability company defined?
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Definition: Business organization with limited liability of a corporation, yet taxed like partnership
Formed under state law Owners of LLC (“members”) pay personal income taxes on shares they report No limitation on number of owners permitted in LLC |
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What is a cooperative?
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Organization formed by individuals to market products
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What is a joint stock company?
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Partnership agreement in which company members hold transferable shares, while all company goods are held in names of partners
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What is a Business Trust?
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Business organization governed by group of trustees, who operate trust for beneficiaries
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What is a syndicate?
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Investment group that forms for purpose of financing specific large project
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What is a joint venture?
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Relationship between two or more persons/corporations created for specific business undertaking
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What is a franchise?
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Agreement between “franchisor” (owner of trade name/trademark) and “franchisee” (person who, by specific terms of agreement, sells goods/services under trade name/trademark)
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What are the advantages and disadvantages of a franchise to the franchisee?
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Advantages:
Assistance from franchisor in starting franchise Trade name/trademark recognition Franchisor advertising Disadvantages: Must meet contractual requirements, or possibly lose franchise Little/no creative control over business |
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What are the advantages and disadvantages of a franchise to a franchisor?
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Advantages:
Low risk in starting franchise Increased income from franchises Disadvantages: Little control (except contractually) over individual franchise Mary Kay v. Isbell, p. 923 Can become liable for franchise, if franchisor exerts too much control |
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What is a "chain-style" business organization franchise?
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Franchisor helps franchisee establish a business (using franchisor’s business name, and franchisor’s standard “methods and practices”)
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What is a distributorship franchise?
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Franchisor licenses franchisee to sell franchisor’s product in specific area
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What is a manufacturing arrangement franchise?
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Franchisor provides franchisee with technical knowledge to manufacture franchisor’s product
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What are the situations in which a partnership does not exist?
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Employer shares profits with employee as payment for work
Landlord accepts share of profits for payment of rent Party receives share of profits for payment of debt Party receives share of profits for payment of annuity to widow/representative of deceased partner Party receives share of profits for payment from sale of goodwill of business/other property Party receives share of profits for payment of interest on a loan |
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How are partnerships treated and not treated as a legal entity?
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Common Law: not a entity, but treated as one:
Sue or be sued Marshalling assets Can own Property But no limited liability; Legal Aggregate: Partners are liable for debts Partners are taxed on partnership income Partnership cease to exist when partner dies (unless otherwise stated in Arts of P) |
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A partnership agreement, or articles of partnership, should include
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Name of each partner
Name of partnership Duration of partnership How profits divided Division of management responsibilities Contributions from each partner |
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What are the partnership duties?
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Duty of Loyalty (fiduciary duty)
Duty of Obedience (obey P-ship Agrmt) Duty of Care (perform Mgmt duties to best of ability) |
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What are the partnership rights?
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Right to Share in Management
Right to Share in Profits Right to Compensation Rights to Partnership Property Right to Inspect Books Right to an Accounting |
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What circumstances trigger a partner's right to accounting?
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Whenever partnership agreement provides for an accounting
Whenever co-partners wrongfully exclude partner from partnership/from access to partnership books Whenever partner fails to disclose profit/benefit from partnership (breach of “fiduciary duty”) Whenever circumstances render accounting “just and reasonable” |
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What is joint and several liability?
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Third party can choose to sue partners separately, or all partners jointly in one action; partners are collectively, as well as individually, liable for partnership debts (LA civil law: “solidary” liability or liability “in solido”)
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When is a partnership officially terminated?
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Once partnership dissolved and assets liquidated and distributed (“winding up”),
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Partnership dissolution/cessation can result from...
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Partner actions
Operation of law Court action |
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What events occur during a partnership dissolution?
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Fulfillment of established (agreed-upon) partnership objective
Expiration of term stated in partnership agreement Partner withdraws from “partnership at will” (partnership that does not specify objective/duration of partnership) Partner withdraws in accordance with partnership agreement Partner expelled from partnership in accordance with partnership agreement |
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Define winding up of partnership
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Activity of completing unfinished partnership business, collecting and paying debts, collecting partnership assets, and taking inventory
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Upon winding up, what is the order of distribution of partner assets?
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Payment to partnership creditors
Payment of refunds/loans to partners for loans made to partnership Payment of partners for invested capital Payment of profits distributed to partners per terms of partnership agreement |
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What are the requirements for a limited partnership?
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Limited partner has complied in good faith with certificate of limited partnership filing requirement
Limited partner does not participate in control of business Limited partner’s surname is not part of partnership name |
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In a limited partnership, what rights does the general partner have and what rights does the limited one have?
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General:
Has all rights associated with controlling business Has unlimited personal liability for all partnership debts Acts as agent of partnership Limited: Has no right to participate in management and control of business Liability limited to amount of capital partner has contributed to business Is not an agent of the partnership |
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What are some reasons for dissolution of a limited partnership?
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Expiration of term established in certificate of limited partnership
Completion of objective established in certificate of limited partnership Unanimous written consent of all partners (limited and general) Withdrawal of general partner (unless certificate establishes that other general partners will continue operation of business) Court action |
