Ch 16 - Small Business Organizations

Question 1

Sole Proprietorship Disadvantages

Answer 1

Owner personally liable for torts and contracts, lacks continuity after death, difficult to raise financing

Question 2

Agency Concept of Partnership

Answer 2

Each partner deemed to be agent of other partners

Question 3

In absence of partnership agreement, what governs partnership by states?

Answer 3

Uniform Partnership Act

Question 4

IS a partnership if partners are:

Answer 4

Sharing profits or losses
Joint ownership of business
Equal right to be involved in management of business

Question 5

Pass-Through Entity

Answer 5

Business with no tax liability; income is passed through to owners who pay income taxes on it personally

Question 6

Partnership for a Term

Answer 6

If duration is stated in Partnership Agreement

Question 7

Partnership at will

Answer 7

If no duration is listed in partnership agreement

Question 8

Unanimous consent needed to

Answer 8

Significantly change the nature of the partnership

Question 9

Rights of partners

Answer 9

Management, interest, compensations, inspection of books, accounting, property

Question 10

Fiduciary duties

Answer 10

Partners fiduciaries and general agents of one another and the partnership, and must act in best interest for the partnership

Question 11

Duty of Care

Answer 11

refraining from negligent or reckless conduct or knowing violation of the law

Question 12

Duty of Loyalty

Answer 12

Must act for the benefit of the partnership

Question 13

Authority of partners

Answer 13

Partners have apparent authority when carrying out business, and can exercise all implied powers to carry on particular business

Question 14

Liability of partners

Answer 14

Personally liable for debts of partnership.

Question 15

Joint and Several Liability

Answer 15

Third party can choose who of the partnership to sue

Question 16

Right to indemnification

Answer 16

Partner committing the act can be forced to reimburse people.

Question 17

Disociation of partnership

Answer 17

When one partner ceases to be associated in partnership business

Question 18

What happens when partners dissociate?

Answer 18

Allows partners to have interest purchased by partnership AND terminates voting interest in the partnership

Question 19

Wrongful dissociation

Answer 19

Partner has power to to dissociate but may not have right if stated in agreement. This could cause them to be sued.

Question 20

Effects of dissociation

Answer 20

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

Question 21

DIssolution

Answer 21

Legal “death” of the partnership

Question 22

TO dissolve partners can:

Answer 22

Agree to dissolve or be ordered by the court

Operation of Law: death of a partner, bankruptcy, etc.

Question 23

Winding Up and Distribution of Assets

Answer 23

Partners can:

• Complete transactions already begun
• Collect and preserve partnership assets, discharge liabilities, provide accounting

Question 24

Creditors Claims Paid First

Answer 24

1. Payment of debts, including those owed to partner/non-partner creditors
2. Return of capital contributions and distribution of profits to partners
3. If liabilities are greater than assets then partners bear losses in proportion to where they shared profits.

Question 25

Distributorship:

Answer 25

A manufacturer licenses a dealer to sell its product. (Automobile dealerships)

Question 26

Chain Style Business Operation

Answer 26

Franchise operates under franchiser’s trade name and must maintain a certain appearance. (McDonald’s)

Question 27

Manufacturing or Processing Arrangement

Answer 27

Franchiser transmits essential ingredients to franchisee. (Pepsi-Cola bottling company)

Question 28

Federal Rule

Answer 28

Disclosure of material facts for informed decision

Question 29

Franchise Contract

Answer 29

Specifies the terms and conditions of the franchise and spells out rights and duties

Question 30

Payment for franchise

Answer 30

Franchisee usually pays an initial fee or lump sum

Question 31

Sole proprietorship advantages

Answer 31

Owner in complete control, flexible, ease of creation and maintenance

Question 32

Property rights

Answer 32

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