Ch13 Flashcards
1
Q
The three types of business stuctures
A
- Sole proprietorship
- Partnership
- Corporation
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
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.
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.
5
Q
Duty of Good Faith
A
Must act only in the best interest of the partnership
6
Q
5 tiers of the corporate structure
A
- Shareholders: are the owners of the company. Liability is limited to the amount invested
- Board of Directors: Elected by the shareholders, must direct the board policy affairs in the best interest of the corporation
- Statutory Officers: The president, the secretary, and the treasurer. Appointed by the board to run the company on a daily basis
- Employees
- Creditors
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)
8
Q
A chain
A
one business owner operates at several locations
9
Q
A franchise
A
franchisee pays royalties to franchiser for its reputation and quality and for market development
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
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
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
13
Q
Disadvantages of a standalone (1)
A
-Must build their own goodwill