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Flashcards in Ch13 Deck (13):

The three types of business stuctures

1. Sole proprietorship
2. Partnership
3. Corporation


Sole Proprietorship

-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



-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.



-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.


Duty of Good Faith

Must act only in the best interest of the partnership


5 tiers of the corporate structure

1. Shareholders: are the owners of the company. Liability is limited to the amount invested
2. Board of Directors: Elected by the shareholders, must direct the board policy affairs in the best interest of the corporation
3. Statutory Officers: The president, the secretary, and the treasurer. Appointed by the board to run the company on a daily basis
4. Employees
5. Creditors


Advantages of Corporations (3)

-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)


A chain

one business owner operates at several locations


A franchise

franchisee pays royalties to franchiser for its reputation and quality and for market development


Advantages of a franchise (4)

-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


Disadvantages of a franchise (4)

-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


Advantage of a standalone (3)

-Don't need to pay royalties
-Can buy their products and services wherever they choose
-are not otherwise beholden to an overseer


Disadvantages of a standalone (1)

-Must build their own goodwill