Chapter Sixteen Flashcards
sole propritetorship’s require
business name registration
licensing
sole proprietorship
individual owns the entire business but the owner also has all the risk and benefits of running the company
what are key characteristics of an SP
taxes - personal income tax
owner’ s individual retirement
what does it mean in an SP when the owner is liable for the debt of the company
a company you owe debt to or creditors can file a civil lawsuit against you personally and go after your business assets, personal property home, car, bank, acct
Case 16.1 - Michael Sark
logging business
sarks obligation and could not pay
did not want creditors to get house
illegally gave to son
creditors would get judgement, when sell house creditors paid back first
ACTG Note: creditors get worth of business/liabilities first
General Partnership
two partners or more but run like an SP
creating a GP
three things
presumption of a GP:
share profits/losses
joint ownership/managing business
hold out as a partnership - partnership by estoppel
does a GP require anything to be in writing
no
partnership by estoppel
under the law a partnership exsits if:
occurs when a person (who is not a partner) holds himself out to third parties and the third party relies to her detriment
why this matters - liability
CWC Case example of GP
Welding company owned by dad
Two kids are Reggie and Mark
During HS worked hourly
Get out and work for dad
CWC contracts with company called Epsco for pay roll
CWC out of business
Epsco needs 150,000 and files lawsuit (obligations of CWC)
* Sue CWC, dad, Reggie and mark
* R and M want out – argue employees not owners
* But had business cards, on bank accounts, filled out applcaitin with Epsco saying owners
If Reggie and dad cannot pay but Mark has equity in house and money (go after Mark) Epsco can go after whoever want
* Mark can alternatively sue dad and Reggie Epsco does not care because already got 150k
If dad contracted with Epsco Mark still might have to pay it off
Does not have to be in writing can be verbal agreement
Sam and Don verbally 60-40; but because not written, court will go 50-50
General partnerships characteristics
management - all owners have equal rights unless in writing otherwise
all owners have equal rights unless in writing otherwise
taxed like a partnership (owners file taxes)
what is “agent of the other partner”
each partner is deemed to be an agent of the other
a partner may bind a partnership in contract as long as the partner is acting within scope of authority
any partner can enter into contract on behalf of GP
what if owners of a partnership verbally agree to split the profits and losses 60-40 and there is nothing in writing
a written agreement is not required to create a GP; but court will split profit and losses 50-50 unless the owners have a written agreement
example of “agent of the other partner in GP”
Sam purchases 10,000 worth of inventory on behalf of GP; GP becomes broke; Sam is broke; Don must pay
liability of partners
you assume all the risk - you and your partner
no LL
each partner of GP is jointly and severally liable for the full judgement
joint and several liability
any partner will have to pay judgement case
plaintiff will execute the entire judgement against the partner(s) who has money and assets and is the easiest to collect
if a plaintiff successfully collects against one partner, the partner may sue and try to collelct from the other partners, but the Plaintiff has their judgement paid in full
example of joint and several liability
Sam and Don own GP. store located in TN. Sam has been sexually harassing an employee. employee filed a claim against GP, Sam, and Don
GP has gone out of business
Sam is broke
Don is rich
potential questions:
what legal entity is this?
who can be held liable?
liability of new partner
new partner only liable for new debt
may lose investment but will only be jointly and severally liable for amount of new debt generated when joined GP
franchises
agreement so that franchiser (owner of trademark, trade name or copy right) licenses
franchisee to use the trademark, trade name, or copyright in the sale of g/s
types of franchises
chain style - Chipotle
manufacturing/processing arrangement - franchisor provides a secret formula or process to the franchisee - Coca Cola
distributorship - franchisor manufactures a product and licenses a retail franchisee to distribute the product the the public - Ford Co.
franchises contract:
must comply with price stated in contract - sets out terms and conditions
payment - initial fee/& of advertising, admin expenses, & of annual sales
real property - leased or bought
territory to be served and possibly exclusive rights (no comp)
quality - certain standards, inspections to maintain quality
pricing -
limited partnership - silent partners
limited partner - contributes cash and owns an interest in the business but has no management rights so silent partner’s liability is limited to the amount of invest
general partner assumes all management and personal liability
limited partner must stay silent and cannot help manage or will lose protected liability
cannot held liable for damages because did not manage - assets no take
example of four docs sharing office space area/receptionist
Each doc had own patients, diff hours, practiced a little dif
But shared acct with billing
One of docs sued for malpractice
Plaintiff sued all docs (A did malpractice, but B, C, D want out because claiming not GP but court came and said because share billing acct makes them GP)
Plaintiff can collect all against whoever even though B, C, and D are not liable
triple american grill example
Frank/Joe bank acct
Joe going around saying owner
Contract with CF
TAG under, CF owed 20;
What legal entity: GP
Why is Joe GP: share bank acct and parentship by estoppel
Who could be held liable: whoever has money – if Joe could be personally liable under joint and severable liability
