Ch 16 - Small Business Organizations Flashcards
Sole Proprietorship Disadvantages
Owner personally liable for torts and contracts, lacks continuity after death, difficult to raise financing
Agency Concept of Partnership
Each partner deemed to be agent of other partners
In absence of partnership agreement, what governs partnership by states?
Uniform Partnership Act
IS a partnership if partners are:
Sharing profits or losses
Joint ownership of business
Equal right to be involved in management of business
Pass-Through Entity
Business with no tax liability; income is passed through to owners who pay income taxes on it personally
Partnership for a Term
If duration is stated in Partnership Agreement
Partnership at will
If no duration is listed in partnership agreement
Unanimous consent needed to
Significantly change the nature of the partnership
Rights of partners
Management, interest, compensations, inspection of books, accounting, property
Fiduciary duties
Partners fiduciaries and general agents of one another and the partnership, and must act in best interest for the partnership
Duty of Care
refraining from negligent or reckless conduct or knowing violation of the law
Duty of Loyalty
Must act for the benefit of the partnership
Authority of partners
Partners have apparent authority when carrying out business, and can exercise all implied powers to carry on particular business
Liability of partners
Personally liable for debts of partnership.
Joint and Several Liability
Third party can choose who of the partnership to sue
Right to indemnification
Partner committing the act can be forced to reimburse people.
Disociation of partnership
When one partner ceases to be associated in partnership business
What happens when partners dissociate?
Allows partners to have interest purchased by partnership AND terminates voting interest in the partnership
Wrongful dissociation
Partner has power to to dissociate but may not have right if stated in agreement. This could cause them to be sued.
Effects of dissociation
Management rights and duties of outgoing partner cease
Based on doctrine of Apparent Authority, partnership can be bound for the years by acts of outgoing partner unless proper notice is given
DIssolution
Legal “death” of the partnership
TO dissolve partners can:
Agree to dissolve or be ordered by the court
Operation of Law: death of a partner, bankruptcy, etc.
Winding Up and Distribution of Assets
Partners can:
- Complete transactions already begun
- Collect and preserve partnership assets, discharge liabilities, provide accounting
Creditors Claims Paid First
- Payment of debts, including those owed to partner/non-partner creditors
- Return of capital contributions and distribution of profits to partners
- If liabilities are greater than assets then partners bear losses in proportion to where they shared profits.
Distributorship:
A manufacturer licenses a dealer to sell its product. (Automobile dealerships)
Chain Style Business Operation
Franchise operates under franchiser’s trade name and must maintain a certain appearance. (McDonald’s)
Manufacturing or Processing Arrangement
Franchiser transmits essential ingredients to franchisee. (Pepsi-Cola bottling company)
Federal Rule
Disclosure of material facts for informed decision
Franchise Contract
Specifies the terms and conditions of the franchise and spells out rights and duties
Payment for franchise
Franchisee usually pays an initial fee or lump sum
Sole proprietorship advantages
Owner in complete control, flexible, ease of creation and maintenance
Property rights
Property acquired by partnership remains partnership property; individual has no right to sell or transfer
Each partner can:
- Use or possess on behalf of partnership
- Assign right to her share of profits to another to satisfy individual debt
- Cannot use property to satisfy individual debt
