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blaw > Ch 17: Business Org > Flashcards

Ch 17: Business Org Flashcards

1
Q

3 forms of business

A

Sole proprietorship
Partnership
Corporation

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2
Q

Sole proprietorship

A

1 owner

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3
Q

Sole proprietorship advantages

A
  • can gain all the profits

-flexible and can make any decision they want

-only pay personal inc tax

-easier and less costly starting out

-Can transfer all/part of bus to another without approval

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4
Q

Disadvantages

A

-unlimited liability (prop bears all the burden of loss/liabilities)

-can end up putting owner in debt not affecting the bus

-no continuity after death

-ability to raise cap is based on funds of prop and anyone willing to give loans

-lenders less likely to give it to sole proprietors

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5
Q

Partnerships

A

-An agreement (express or implied) btw 2 or more ppl to carry on a business for profit

-Partners = co owners of business and have joint control over operation/right to share in profits

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6
Q

how is agency relationship similar to partnership

A

bc each partners is deemed to be the agent of the other partners and of the partnership and are bound by fiduciary ties (trust and loyalty

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7
Q

how is agency relationship diff than partnerships

A

Diff bc each partner contributes failure and agree to share profits/losses and the agent doesnt usually own part of the business

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8
Q

UPA defines partnership as

A

an association of 2 or more persons to carry on as co-owners a business for profit”

Under UPA- corp = person

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9
Q

t of. f
key element of partnership is intent to associate meaning one cannot become a partner w/o consent form all existing partners

A

t

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10
Q

3 essential elements of partnership from UPA

A

Sharing of profits/losses

Joint ownership of business

Equal right to be involved in mgmt of business

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11
Q

t or f
Joint ownership of property, does not in and of itself create a partnership. In fact the sharing of gross revenues and even profits from such ownership is usually not enough to create a partnership

A

true- but sharing profits AND losses is enough to prove

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12
Q

what is a pass thru entity

A

business entity that has no tax liability as income is passed thru owners and owners pay tax on income

(partnerships)

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13
Q

partnerships + tax

A

Partnerships only need to file info return w irs, not tax return and each partners share of profits is taxed as personal inc.

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14
Q

Partnership formation

A

Agreement to form a partnership can be oral, writtem, or implied by conduct

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15
Q

Articles of partnership

A

written partnership agreement which can include any terms unless illegal or contrary to pub. Policy

Usually specifies name of business, location, duration, purpose, and how shares and assets will be distributed

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16
Q

Rights of partners (6)

A

mgmt, interest in partnership, compensation, inspection of books, accting, and property

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16
Q

partnership for term

A

specified duration of partnership stating it will continue until said date or upon completion of smth

( withdrawing before agreed date is considered a breach)

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17
Q

Partnership at will

A

no fixed duration, can leave anytime

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18
Q

mgmt rights

A

All partners have equal rights in managing partnership

Each party has 1 vote in mgmt regardless of their size of interest at firm

For business matters decisions are made by majority rule but decisions that significantly alter partnership or fall outside reg business activities must have consent form all partners (ex admiting new partners)

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19
Q

Interest in relationship

A

each partner is entitled to the proportion of profits and losses that is designated in the agreement

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20
Q

what if not profits or losses are agreed in the agreement

A

If no profit is agreed - it will be shared equally

If losses not agreed - it will be shared the same as profits

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21
Q

Compensation for partners

A

not compensated for their time/ efforts but instead they earn income (comepnsated) thru the profit distributions

Some exceptions - for ex a managing partner may receive salary + profit share

22
Q

Inspection of books

A

books/records required to be kept at firm and accesable to all Ps

partners have right to receive and produce info concerning business

Each partner can inspect books/records on deman & make copies

23
Q

Accounting of Partnership Assets or Profits

A

Required to determine the value of each partners share in the partnership

Can be voluntary or court ordered

24
Q

Property Rights

A

Property is property of the partnership org not of the partners

Includes all property that was originally contributed and anything purchased later by partnership

Can only use property on behalf of partnership

25
Q

Duties and liabilities of partners is derived from what law

A

agency law

26
Q

t or f
Every act of a partner business/ every contract signed in the partnership’s name, binds the firm

A

t

27
Q

Fiduciary duties of partners

A

Partners have the duty of loyalty and care to the partnership and other partners

28
Q

duty of loyalty

A

Requires partner to acct partnership for any property, profit, or benefit” derived by the partner from the partnership’s

Partner must not compete w partnership/ act against partnership

29
Q

Duty of care

A

Partners must avoid gross negligence, reckless actions, or violations

They wont be liable for simple or honest negligence

30
Q

Agreement cant define actions that violate fiduciary duties, but cannot eliminate the duties t or f

A

t

31
Q

Partners cannot pursue their own interests t or f

A

f yes they can as long as they disclose w other partners

32
Q

Liability of partners + what is true

A

Partners are personally liable for debts of partnership - essentially unlimited bc even one partners choice can cause personal liabilities for other partners

BUT partnerships assets must all be taken first before going for the partners

33
Q

Joint liability of partners

A

Each partner is jointly liable meaning a 3rd party must sue all parties tog to enforce joint L

Ech partner can also be held liable for entire debt but partner that is being sued can demand for others to be sued as well

34
Q

Dissolution

A

Dissolution- termination of the partnership/corp and ends the starts the winding up proces

35
Q

Winding up

A

process of collecting, liquiding, and distributing assets among the partners

36
Q

how can dissolution happen

A

-acts of partners
-operation of law
-judical decree

37
Q

Limited liability partnerships

A

LLP- hybrid form of business designed for professionals (attorneys) who do business as partners in partnership

38
Q

advantage of LLP

A

continues as pass-thru entity but limits the liability of the partners

39
Q

FLLP

A

when majority of the partners are related

40
Q

Formation of an LLP

A

Must be formed and operated in compliance w state laws and UPA and file all forms including LLP in name

Must submit annual report to maintain LLP status

41
Q

Liability in an LLP

A

Allows professionals to avoid personal liability for the malpractice of other partners (grey chill even tho callie wasn’t) (not like reg partnership)

42
Q

Limited partnerships (LP)

A

Limits liability of only SOME owners

43
Q

LP consists of

A

GP and 1 or more limited partners

44
Q

GP and LP roles and resonsibility and liability

A

Gp - managed partnership and has full responsibility and liability

LP- contribute funds and own stake in firm

Limited partners not personally liable beyond amt of their investment

45
Q

Limited liability companies

A

Ideal business w combines tax advantages of partnership w limited liability of corps

States now allow LLC which combines both of these

46
Q

Limited liability of LLC members and advantage

A

Key advantage is that is that liability is limited to amt of investments

LLC as an entity can be held liable but the members themselves generally are not personally liable.

47
Q

How do LLC have flexibility

A

LLC that has 2 or more members can choose to be taxed as a partnership or corp (avoiding double taxation)

48
Q

why might LLC choose to be taxed as partner

A

corps are double taxed thru income paid on profits and thru profits distributed thru dividends so, they might choose to be taxed as a partnership

49
Q

LLC info + sole advantage

A

Unless indicated, LLCs will be taxed as partnership meaning LLC as an entity pays no taxes and are passed thru

Only if an LLC’s members want to reinvest the profits in business, hey may prefer that the LLC be taxed as a corporation.

But sometimes corp inc tax can be lower than personal, that’s why this is an advantage w flexibility in choosing

50
Q

Chain style business operations

A

Franchise operates under franchisors trade name

Generally required to follow standardized methods of operation

Obligated to obtain materials exclusively from franchisor

51
Q

The franchise contract

A

Relationship is defined by contract btw the franchisor and the franchisee which says terms/conditions/duties of both parties

If failed to perform duties, there may be a lawsuit for breach

52
Q

Location of the Franchise and Territorial Rights

A

Typically, the franchisor will determine the territory to be served

Some franchise contracts give the franchisee exclusive rights/ “territorial rights,” to a certain geographic area

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