Ch13 Flashcards

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1
Q

The three types of business stuctures

A
  1. Sole proprietorship
  2. Partnership
  3. Corporation
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2
Q

Sole Proprietorship

A
  • Owned by one individual
  • All the assets and liabilities belong to the individual, not the business
  • Income must be declared on the individual’s income tax.
  • Any losses could affect the person’s personal assets. i.e. House, bank account
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3
Q

Partnership

A
  • Consists of two or more persons with a view to profit
  • Most are created by an express agreement between partners, but can also be by the conduct of the partners
  • Parties are equal partners, entitled to equal say and equal divisions of profits/losses
  • Owe each other duty of good faith
  • An actual or apparent partner may bind other partners in obligations to third parties
  • Limited liability partnerships are allowed
  • Once again, personal property of each partner is at risk from possible lawsuits.
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4
Q

Corporation

A
  • Created by statute with a separate existence from their owners
  • Corporations file their own tax returns.
  • Liability is limited to the amount invested.
  • Personal assets of shareholders are protected.
  • Government filing requirements and fees
  • Records must be kept for review at head office.
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5
Q

Duty of Good Faith

A

Must act only in the best interest of the partnership

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6
Q

5 tiers of the corporate structure

A
  1. Shareholders: are the owners of the company. Liability is limited to the amount invested
  2. Board of Directors: Elected by the shareholders, must direct the board policy affairs in the best interest of the corporation
  3. Statutory Officers: The president, the secretary, and the treasurer. Appointed by the board to run the company on a daily basis
  4. Employees
  5. Creditors
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7
Q

Advantages of Corporations (3)

A
  • Limitation of liability
  • the ability to hold money in the corporation until it is needed
  • Its legal position as a separate person from its owners (existence doesn’t need to come to an end if the owner dies or sell shares)
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8
Q

A chain

A

one business owner operates at several locations

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9
Q

A franchise

A

franchisee pays royalties to franchiser for its reputation and quality and for market development

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10
Q

Advantages of a franchise (4)

A
  • opportunity of buying a franchise rests with the market development, products and operations of the franchiser
  • Franchisee may acquire instant goodwill, training, and procedural/operational guidance.
  • Learning curve is shortened
  • Risks of enterprise are lowered
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11
Q

Disadvantages of a franchise (4)

A
  • Any problems arising out of being part of a weak franchise operation
  • Being overly tied to buying the franchiser’s products/services and abiding to strict operational rules
  • Size of the royalty and other payments may not be fair
  • If the franchiser suffers major public embarrassment
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12
Q

Advantage of a standalone (3)

A
  • Don’t need to pay royalties
  • Can buy their products and services wherever they choose
  • are not otherwise beholden to an overseer
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13
Q

Disadvantages of a standalone (1)

A

-Must build their own goodwill

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