TEST 4: CH 34 Flashcards
Entrepreneur
- a person who forms and operates a new business either by himself or herself or with others
Entrepreneurial Forms
- sole proprietorship
- general partnership
- limited partnership
- limited liability partnership
- limited liability company
- corporation
Sole Prioprietorship
- the owner is actually the business
- all that is required for this is that one person is conducting a business
True or False: You need permission from the federal government to run a sole proprietorship business.
- false, you don’t need state or federal permission
- no formalities needed (i.e. forms, certificates, licenses, etc.)
What are the advantages of a sole proprietorship?
- easy to form and low cost
- owner makes management decisions
- owner receives all profit
- ownership can be easily transferred or sold
What are the disadvantages of a sole proprietorship?
- capital is limited to personal funds and loan
- owner is legally responsible for all activities (biggest disadvantage)
How is a Sole Proprietorship taxed?
- no taxes at business level
- earnings and losses are reported as ordinary personal income tax filing
General Partnership
- voluntary association of two or more persons for carrying on a business as co-owners for profit
- formed with little or no formality
Association
- two or more persons working without seeking profit
True or False: A general partnership creates rights and duties among parties and within third parties.
- true
True or False: A general partnership can use a fictitious name.
- true but they must file a fictitious name statement with the government and publish a notice in the newspaper
- cannot be similar to name used by another business
Rights of General Partners
- right to participate in management
- right to share in profits
- right to compensation
- right to reimbursement
- right to return of loans
- right to return of capital contributions
- right to demand true and full information
Duty of Loyalty (General Partners)
- partner should not act adversely to the interest of the partnership
- if a partner is disloyal any profit they make when disloyal is divided between remaining partners
- a disloyal partner could be expelled from the partnership by simple majority vote
What are the forms of breach of loyalty in a General Partnership?
- self-dealing
- usurping a partnership opportunity
- competing with the partnership
- making secret profits
- breach of confidentiality
- misuse of partnership property
Duty of Care (General Partnership)
- obligation to use same level of care and skill that a reasonable person would use
- breach of care is negligence
Duty to Inform
- provide all information relevant to affairs of the partnership
- other partners are imputed with knowledge of all notices
Duty of Obedience
- adhere to provisions of partnership agreement and decisions
- to accept any business, you need simple majority of partners to agree
Action For An Accounting
- formal judicial proceeding in which the court is authorized to:
1. review partnership and partners transactions
2. award each partner his or her share of partnership
Tort Liability
- unlimited personal liability for debts and obligations of partnership
Joint and Several Liability
- for torts and breaches of trust
- plaintiff can sue each partner separately
- plaintiff can recover entire amount from all liable partners
Contract Liability
- unlimited personal liability for contracts of partnership
Joint Liability
- for contracts and debts of partnership
- plaintiff must name all partners as defendants in a lawsuit
Liability of Incoming Partners
- liable to debts and obligations only to extent of capital contribution
- if new partner comes in after establishment of partnership, new partner is only liable for amount invested to partnership
Liability of Outgoing Partners
- liable for debts and obligations incurred at time of issolution
- not liable for new debt and obligation incurred after dissolution
Dissolution of General Partnership
- change in the relation of partners caused by any partner ceasing to be associated in the business
Winding Up
- liquidation of partnership assets and distributing the proceeds to satisfy claims against the partnership
- partnership cannot accept any new business
- must complete all existing business
Wrongful Dissolution
- partner withdraws from partnership prior to expiration of the term
Who gets a notice of dissolution?
- third parties who have dealt with the partnership must get actual notice
- third parties who have not dealt with business but have knowledge of it must get actual or constructive notice
Distribution of Assets
- after all work is completed
- if there is no written partnership agreement, all partners share profits equally (if written agreement exists, profits could be shared unequally)
How are debts satisfied after dissolution of partnership?
- creditors
- creditor-partners
- capital contributions
- profits
True or False: If partnership cannot satisfy claims, partners are not liable.
- false, partners are personally liable if the partnership cannot satisfy claims
