Chap 17 redo

Question 1

Sole Proprietorships

Answer 1

The simplest form of business organization, used by anyone who does business without creating a separate organization. The owner is the business. The owner pays personal income taxes on all profits and is personally liable for all business debts.

Question 2

Partnerships

Answer 2

1. A partnership is created by agreement of the parties.
2. A partnership is treated as an entity except for limited purposes.
3. Each partner pays a proportionate share of income taxes on the net profits of the partnership, whether or not they are distributed. The partnership files only an information return with the Internal Revenue Service.
4. Each partner has an equal voice in management unless the partnership agreement provides otherwise.
   5.In the absence of an agreement, partners share profits equally and share losses in the same ratio as they share profits.
   6.Partners have unlimited personal liability for partnership debts.
   7.A partnership can be terminated by agreement or can be dissolved by action of the partners, operation of law, or court decree.

Question 3

Limited Liability Partnerships (LLPs) Formation

Answer 3

LLPs must be formed in compliance with state statutes. Typically, an LLP is formed by professionals who normally work together as partners in a partnership. Under most state LLP statutes, it is relatively easy to convert a traditional partnership into an LLP.

Question 4

Limited Liability Partnerships (LLPs) Liability

Answer 4

LLP statutes vary, but under the UPA, professionals generally can avoid personal liability for acts committed by other partners. Partners in an LLP continue to be liable for their own wrongful acts and for the wrongful acts of those whom they supervise.

Question 5

Limited Partnerships (LPs) Formation

Answer 5

A certificate of limited partnership must include information about the business and must be filed with the designated state official. The partnership consists of one or more general partners and one or more limited partners.

Question 6

Limited Partnerships (LPs) Rights and liabilities of partners

Answer 6

With some exceptions, the rights of partners are the same as the rights of partners in a general partnership. General partners have unlimited liability for partnership obligations. Limited partners are liable only to the extent of their contributions.

Question 7

Limited Partnerships (LPs) Limited partners and management

Answer 7

Only general partners can participate in management. If limited partners participate in management activities, they risk having liability as general partners.

Question 8

Limited Partnerships (LPs) Dissociation and dissolution

Answer 8

Generally, a limited partnership can be dissolved in much the same way as an ordinary partnership. A general partner has the power to voluntarily dissociate unless the parties’ agreement specifies otherwise. Some states limit the power of limited partners to voluntarily withdraw from the firm. The death or assignment of interest of a limited partner does not dissolve the partnership. Bankruptcy of a limited partner does not dissolve the partnership unless it causes the bankruptcy of the firm.

Question 9

Limited Liability Companies (LLCs) Formation

Answer 9

Articles of organization must be filed with the appropriate state office—usually the office of the secretary of state— setting forth the name of the business, its principal address, the names of the owners (called members), and other relevant information.

Question 10

Advantages of the LLC

Answer 10

Advantages of the LLC include limited liability and the option to be taxed as a partnership or as a corporation.

Question 11

LLC Management

Answer 11

An LLC may be managed by members only, by some members and some nonmembers, or by nonmembers only.

Question 12

LLC Operating agreement

Answer 12

When an LLC is formed, the members decide, in an operating agreement, how the business will be managed and what rules will apply to the organization.

Question 13

LLC Dissociation and dissolution

Answer 13

Members of an LLC have the power to dissociate from the LLC at any time, but they may not have the right to dissociate. Dissociation does not always result in the dissolution of an LLC. The remaining members can choose to continue the business. Dissociated members have a right to have their interest purchased by the other members. If the LLC is dissolved, the business must be wound up and the assets sold. Creditors are paid first, and then members’ capital investments are returned. Any remaining proceeds are distributed to members.

Question 14

Types of franchises

Answer 14

Include distributorships, chain-style operations, and manufacturing or processing-plant arrangements.

Question 15

Laws governing franchising

Answer 15

Franchises are governed by contract law, as well as federal and state statutes and regulations.

Question 16

The franchise contract

Answer 16

The franchise relationship is defined by a contract between the franchisor and the franchisee. The contract normally spells out such terms as payment for the franchise, the business’s organization, its location, and any quality-control standards that will apply.

Question 17

Franchise Termination

Answer 17

The franchise contract may specify the duration and conditions of termination of the franchise arrangement. Both federal and state statutes attempt to protect franchisees from franchisors who unfairly or arbitrarily terminate franchises.

Question 18

Distributotship

Answer 18

arises when a manufacturing concern (franchisor) licenses a dealer (franchisee) to sell its product. Often, a distributorship covers an exclusive territory. An example is an automobile dealership or beer distributorship.

Question 19

Chain-style business operations

Answer 19

a franchise operates under a franchisor’s trade name and is identified as a member of a select group of dealers that engage in the franchisor’s business. The franchisee is generally required to follow standardized or prescribed methods of operation. Often, the franchisor requires that the franchisee maintain certain standards of operation. Sometimes the franchisee is obligated to obtain materials and supplies exclusively from the franchisor Examples of this type of franchise are McDonald’s and most other fast-food chains.

Question 20

Manufacturing or Processing-Plant Arrangements

Answer 20

the franchisor transmits to the franchisee the essential ingredients or formula to make a particular product. The franchisee then markets the product either at wholesale or at retail in accordance with the franchisor’s standards. Examples of this type of franchise are Coca-Cola and other soft-drink bottling companies.

Question 21

articles of organization

Answer 21

A document filed with a designated state official to form a limited liability company.

Question 22

articles of partnership

Answer 22

A written agreement that sets forth each partner’s rights and obligations with respect to the partnership

Question 23

buyout price

Answer 23

The amount payable to a partner on dissociation from a partnership, based on the amount distributable to that partner if the firm were wound up on that date, and offset by any damages for wrongful dissociation.

Question 24

buy-sell agreement

Answer 24

An agreement made at the time of partnership formation providing for one or more of the partners to buy out the other or others, in the event the firm is dissolved. It is also called a buyout agreement.

Question 25

certificate of limited partnership

Answer 25

A document filed with a designated state official to form a limited partnership.

Question 26

dissociation

Answer 26

The severance of the relationship between a partner and a partnership when the partner ceases to be associated with the carrying on of the partnership business.

Question 27

dissolution

Answer 27

The formal disbanding of a partnership or a corporation.

Question 28

entrepreneur

Answer 28

One who initiates and assumes the financial risks of a new business enterprise and undertakes to provide or control its management.

Question 29

franchise

Answer 29

Any arrangement in which the owner of a trademark, trade name, or copyright licenses another to use that trademark, trade name, or copyright in the selling of goods or services.

Question 30

franchisee

Answer 30

One receiving a license to use another’s (the franchisor’s) trademark, trade name, or copyright in the sale of goods and services.

Question 31

franchisor

Answer 31

One licensing another (the franchisee) to use the owner’s trademark, trade name, or copyright in the selling of goods or services.

Question 32

general partner

Answer 32

In a limited partnership, a partner who assumes responsibility for the management of the partnership and liability for all partnership debts.

Question 33

information return

Answer 33

A tax return submitted by a partnership that only reports the business’s income and losses. The partnership as an entity does not pay taxes on the income.

Question 34

joint and several liability

Answer 34

A doctrine under which a plaintiff can file a lawsuit against all of the partners (jointly) or one or more of the partners separately (severally).

Question 35

joint liability

Answer 35

In partnership law, the partners’ shared liability for partnership obligations and debts. A third party must sue all of the partners as a group, but each partner can be held liable for the full amount.

Question 36

limited liability company (LLC)

Answer 36

A hybrid form of business enterprise that offers the limited liability of the corporation and the tax advantages of a partnership.

Question 37

limited liability partnership (LLP)

Answer 37

A hybrid form of business organization that is used mainly by professionals who normally do business in a partnership.

Question 38

limited partner

Answer 38

In a limited partnership, a partner who contributes capital to the partnership but has no right to participate in the management and operation of the business. The limited partner assumes no liability for partnership debts beyond the capital contributed.

Question 39

limited partnership (LP)

Answer 39

A partnership consisting of one or more general partners (who manage the business and are liable to the full extent of their personal assets for debts of the partnership) and one or more limited partners (who contribute assets and are liable only up to the extent of their contributions).

Question 40

member

Answer 40

A person who has an ownership interest in a limited liability company.

Question 41

operating agreement

Answer 41

In a limited liability company, an agreement in which the members set forth the details of how the business will be managed and operated.

Question 42

partnership

Answer 42

An agreement by two or more persons to carry on, as co-owners, a business for profit.

Question 43

partnership by estoppel

Answer 43

A partnership imposed by a court when nonpartners have held themselves out to be partners, or have allowed themselves to be held out as partners, and others have detrimentally relied on their misrepresentations.

Question 44

pass-through entity

Answer 44

A business entity that has no tax liability. The entity’s income is passed through to the owners, and the owners pay taxes on the income.

Question 45

sole proprietorship

Answer 45

The simplest form of business, in which the owner is the business. The owner reports business income as personal income tax return and is legally responsible for all debts and obligations incurred by the business.

Question 46

winding up

Answer 46

The second of two stages in the termination of a partnership or corporation, in which the firm’s assets are collected, liquidated, and distributed, and liabilities are discharged.