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9 Cards in this Set
- Front
- Back
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- Sole Proprietorships/Franchises
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Sole Proprietorships- the owner is the business
Advantages- proprietor owns the entire business and has a right to receive all profits - easier and less costly to start; allows flexibilityDisadvantages - the owner is personally liable for all losses or liabilities incurred by the business enterprise - lacks continuity on the death of proprietor In North Carolina: 55, 55a, 55b If using your own name, registration is normally not required (ex. Sarah Stansell Calculus Tutoring). If using a trade name (ex. wolfpack …) must file a certificate with the county register deeds where you’re starting the business. |
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Franchises-
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an arrangement in which the franchisor (owner of trademark, trade name or copyright) licenses franchisee to use the trademark, trade name, or copyright in the sale of goods or services.
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Types of franchises
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- distributorship (autos; beer/wine; personal care products) franchisee doesn’t make anything, they’re a sales outlet
- chain-style business operation (restaurants; services) making things under the name of the organization but selling with their label or name attached on packaging - manufacturing or processing-plant arrangement (soft drink bottlers; some food processors) don’t have to have a storefront. Produce the product locally, then wholesale it to others who sell it as a resale itemRemember: some franchisors might offer a combination! Krispy Kreme – various types of stores plus “commissary facilities” (ex. selling their donuts at the gas station) |
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Laws governing franchises- |
governed primarily by contract law two private parties (franchisor and franchisee) get together and come to a private written agreement on the terms of the franchisenote: textbook mentions if the franchisor decides to take away the franchise away from the franchisee. Most states have franchise statutes that determine how the franchisor can do that. Most of the time the franchisor will have its way if they decide to do this.- federal regulation of franchising – FTC “Franchise Rule” (16 CFR 436-37): emphasis on good faith disclosure of reliable costs & risks, as well as key rules regarding operation of the franchise. States may also have additional rules or regulations (admin. or statutory). Income potential? People were getting excited about franchising and franchisors were abusing this excitement by taking their money and not doing anything else with them, so this rule came about. Income potential – the FTC does not require an obligation by franchisors to disclose income potentials (ie how much money you can make with one of the stores). Problem with disclosing this info – must be a good faith estimate that is realistic across the board (includes all stores, best and worst). Franchisors would rather not do this so th ey don’t. |
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General Partnerships
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– arises from agreement between two or more persons to carry on a business together for a profit. Note that writing is not required (but highly recommended); partnership may be expressed or implied.
Essential elements: - sharing of profits and losses equally - joint ownership - equal right in management Advantages and disadvantages - firm does not pay federal taxes- profits are “passed through” to partners will never have a tax liability, counted as personal income- Joint and several liability – a third party has the option of suing all of the partners together, or one or more separately, from liabilities of the partnership. Partner’s share is considered personal property and may be attached by civil case not related to the partnership. For torts, breaches of contract, or other actionable misdeeds, partners are jointly and severally liable – all partners are liable for the sum total of all civil damages assessable against ANY other partner. If an accident occurs and one partner is sued, all partners are liable. Even if the one who caused the accident dies before the court decision is made, the other partners are still held liable. |
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Limited Partnerships (L.P.)
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Limited Partnerships- Agreement of two or more persons to carry on a business for profit with at least one general partner and one limited partner.
- Limits the liability of the limited partners to their investment. General partner always on the hook for damages. - Limited partners cannot participate in management - An LP is a creature of state statute so filing a certificate with the Secretary of State is required |
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Limited Liability Partnerships (LLP)
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- Hybrid form of business that allows for ‘pass through’ for tax purposes, but limits personal liability from malpractice of other partners. No general partner required; all partners can participate in management of organization
- LLP formation – formed under state law (Uniform Partnership Act - Liability – allows professionals to avoid personal liability for the malpractice of partners as in an LP. |
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Limited Liability Companies (LLC)
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LLC Formation – must be formed and operated in compliance with state law
- the “limited liability of the corporation” and the tax advantages of the partnership. - Profits pass through and taxes are paid individual; may choose to reinvest and be taxed as a corporation, however. |
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Corporations
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A legal entity that is distinct from its shareholder-owners formed in compliance with statutory requirements
- Model Business Corporation Act (MBCA) - Revised Model Business Corporation Act (RMBCA) Primary advantages: limited liability for losses (‘corporate personhood’) and ability to raise mass capital through issuance of securities. Types of Corporations Domestic corporation - does business in its state of incorporation- Foreign corporation - from X state doing business in Z state. If no business presence in those other states (ex. internet retailer that does a sale in Z state), may not have to register due to INTERstate commerce. But if they do INTRAstate business, must register. - Alien corporation - formed in another country doing business in United States S corporations don’t pay income tax themselves. Instead, their profits and losses are passed through to their shareholders, who then report them on their own personal tax returns. According to the IRS, in 2011 there were 4,158,572 S corporations; 99.4% had 10 or fewer shareholders. (The IRS does keep track of S corps) |
