Quiz 5 Franchises, Duties, & Taxes Flashcards
Franchise Agreement
A legal agreement between the franchisor and franchisee that creates the legal foundation for the franchise relationship.
Franchise Agreement- Termination
The franchise agreement usually sets out conditions of termination.
Relationship between Franchisor and Franchisee (3 things) #1
Franchisees must be given reasonable time to wind up the business.
Relationship between Franchisor and Franchisee (3 things) #2
A franchisee may receive little or
nothing on termination
since the franchisor owns the trademark and the business.
Relationship between Franchisor and Franchisee (3 things) #3
If franchisor arbitrarily or unfairly terminates a franchise, franchisee may be able to sue for wrongful termination
Termination not considered “wrongful” if (2 things)
- Franchisor’s decision to
terminate was made in the normal course of business operations. - Reasonable notice of termination was given to the franchisee.
Duty of Care
Acting in good faith
(honestly) exercise the care that an ordinarily prudent
(careful) person would exercise in similar circumstances
Duty of Loyalty
Disclosing or avoiding any conflicts of interest
Jurisdiction meaning
Where a court will hear a case about disputes regarding a contract
What is citizenship for Jurisdiction
A business’ citizenship determines whether a dispute belongs in state or federal court
How is a business’ citizenship determined for Jurisdiction
Citizenship depends on whether the business is a corporation or an LLC
Corporation Citizenship
Citizen in the state it was incorporated and where it maintains its principal place of business
Partnership Citizenship
Citizen in every state that its partners reside ( so multiple states might have jurisdiction)
LLC Citizenship
Citizen in every state that its partners reside ( so multiple states might have jurisdiction)
LLCs are treated like Partnerships for Jurisdiction
How are LLCs managed #1
Member managed: every member participates in management
How are LLCs managed #2
Manager managed:
LLC can elect to be manager managed, where members designate a group of people to manage the business
How are LLCs taxed-2 or more members
2 or more members will be taxed as a partnership (pass-through) unless thy choose to be taxed as a corporation (double tax)
How are LLCs taxed-one member
Taxed as a sole proprietorship, u less the owner wishes to be taxed as a corporation
Duties of Shareholders (2 things)
1 Majority
shareholders owe a duty of fairness and loyalty to minority shareholders and the corporation.
2. They must not abuse their control to the detriment of others (e.g., through oppressive conduct or self-dealing)
Duties of Officers (3 things)
- Responsible for the day-to-day
management of the corporation - Duty of Loyalty and 3. Duty of care
Duties of Directors
(2 things)
- Duty of Loyalty and 2. Duty of care
