Exam 2: Small Business Forms Flashcards
Chapter 36, 37 and 38
Considerations when looking as business forms
- Ease of Creations (formal means forms)
- Owners’ Liability
- Tax Considerations
- Need for Capital
Who is a sole proprietorship created?
Informally, just do it!
Anyone who does business without creating a separate business entity
What is the major disadvantage of sole proprietorship?
Owner is personally liable for all torts/contracts and all losses incurred by the business enterprise
Tax considerations for a sole proprietorship?
- Form 1040 - Schedule C
- Self-employment Taxes
- enjoys offset of losses against other ordinary income
Franchise
Contract so that Franchisor licenses Franchisee to use the trade mark, trade name or copyright in the sale of goods or services
Types of Franchises (3)
- Distributorship
- Chain Style Business Operation
- Manufacturing or Processing Agreement
What law governs partnerships?
Common law and Statutory law
Partners are agents?
- Each partner is deemed to be an agent of the other
- Each partner is a fiduciary of the other
In the absence of a partnership agreement, what governs?
The Uniform Partnership Act (State Statutory Law)
When does a partnership exist?
A partnership is created when two or more persons agree to carry on business for profit as co-owners and rights to manage and share profits.
Partnership by Estoppel
If commercial enterprise share profits and losses as a partnership may be inferred by the court
Exception to Partnership by Estoppel
A partnership is not inferred if profits are received as payment in the following situations:
- debt by installments of interest on a loan
- wages to an employee
- rent to a landlord
- sale of good will
When are partnerships recognized as a separate legal entity?
- to sue and be sued (judgements made against assets)
- to own partnership property (and convey it)
- to keep books and file taxes
What is the tax theory for partnerships?
That is it an aggregate of two or more individuals. Partnership pays no federal income tax but file their own federal income tax return to report each partner’s share of income (Form 105)
What forms a partnership?
Partnership Agreement (can be oral for less than a year, otherwise written SOF)
