Flashcards in Ch13 Deck (13):
The three types of business stuctures
1. 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
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)
one business owner operates at several locations
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