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33 Cards in this Set

  • Front
  • Back
What are the major forms of business organization?
Sole Proprietorship, Partnership, Corporation, Limited Partnership, Limited Liability Company
What are the advantages and disadvantages of a sole proprietorship?
Ease of creation (“start-up”)

Owner has total managerial control

Owner retains profits
Personal liability for all business debts/obligations

Funding limited to personal contributions and loans
What are the advantages and disadvantages of a partnership?
Ease of creation (“start-up”)

Partnership income is partner income

Business losses qualify for tax deduction
Personal liability for all business debts/obligations, including those incurred by other partners on behalf of partnership
What is special about the limited partner in a limited partnership?
Limited partner’s liability limited to extent of his/her capital contributions

Limited partner has no managerial/operational control over business
What are the advantages and disadvantages of a corporation?
Limited liability for shareholders

Ease of raising capital by issuing (selling) stock

Formalities required in establishing and maintaining corporate existence
How is an s-corporation defined?
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
HOw is a limited liability company defined?
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
What is a cooperative?
Organization formed by individuals to market products
What is a joint stock company?
Partnership agreement in which company members hold transferable shares, while all company goods are held in names of partners
What is a Business Trust?
Business organization governed by group of trustees, who operate trust for beneficiaries
What is a syndicate?
Investment group that forms for purpose of financing specific large project
What is a joint venture?
Relationship between two or more persons/corporations created for specific business undertaking
What is a franchise?
Agreement between “franchisor” (owner of trade name/trademark) and “franchisee” (person who, by specific terms of agreement, sells goods/services under trade name/trademark)
What are the advantages and disadvantages of a franchise to the franchisee?
Assistance from franchisor in starting franchise

Trade name/trademark recognition

Franchisor advertising
Must meet contractual requirements, or possibly lose franchise

Little/no creative control over business
What are the advantages and disadvantages of a franchise to a franchisor?
Low risk in starting franchise

Increased income from franchises
Little control (except contractually) over individual franchise
Mary Kay v. Isbell, p. 923

Can become liable for franchise, if franchisor exerts too much control
What is a "chain-style" business organization franchise?
Franchisor helps franchisee establish a business (using franchisor’s business name, and franchisor’s standard “methods and practices”)
What is a distributorship franchise?
Franchisor licenses franchisee to sell franchisor’s product in specific area
What is a manufacturing arrangement franchise?
Franchisor provides franchisee with technical knowledge to manufacture franchisor’s product
What are the situations in which a partnership does not exist?
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
How are partnerships treated and not treated as a legal entity?
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)
A partnership agreement, or articles of partnership, should include
Name of each partner
Name of partnership
Duration of partnership
How profits divided
Division of management responsibilities
Contributions from each partner
What are the partnership duties?
Duty of Loyalty (fiduciary duty)

Duty of Obedience (obey P-ship Agrmt)

Duty of Care (perform Mgmt duties to best of ability)
What are the partnership rights?
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
What circumstances trigger a partner's right to accounting?
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”
What is joint and several liability?
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”)
When is a partnership officially terminated?
Once partnership dissolved and assets liquidated and distributed (“winding up”),
Partnership dissolution/cessation can result from...
Partner actions

Operation of law

Court action
What events occur during a partnership dissolution?
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
Define winding up of partnership
Activity of completing unfinished partnership business, collecting and paying debts, collecting partnership assets, and taking inventory
Upon winding up, what is the order of distribution of partner assets?
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
What are the requirements for a limited partnership?
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
In a limited partnership, what rights does the general partner have and what rights does the limited one have?
Has all rights associated with controlling business

Has unlimited personal liability for all partnership debts

Acts as agent of partnership
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
What are some reasons for dissolution of a limited partnership?
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