Business Law - Chapter 19

  1. Define Entrepreneur
    One who initiates and assumes the financial risk of a new business enterprise and undertakes to provide or control its management
  2. What are some of the major
    forms of business organization in the United States
    • Sole proprietorships
    • Partnership
    • Corporation
    • Limited liability company
    • Limited liability partnership
  3. Define Sole Proprietorship
    • The simplest form of business organization, in which the owner is the business.
    • Reports income on his/her personal income tax return and is legally responsible for all debts and obligations incurred by the business
  4. What are the advantages of a sole proprietorship
    • Proprietor owns the entire business and has a right to receive all of the profits
    • Less costly
    • No documents need to be filed with the government
    • Flexibility - sole proprietor is free to make any decision she or she wishes
    • Sell or transfer all or part of the business
    • Pay only personal income taxes
    • Social Security
    • Medicare taxes
    • Establish retirement accounts that are tax exempt until the funds are withdrawn
  5. What are some disadvantages of a sole proprietorship
    • Bears the burden of any losses or liabilities
    • Unlimited liability or legal responsibility
    • Personal liability
    • Continuity can stop from the death of the proprietor
    • Raising capital (only have as much money as the owner has)
  6. Define Partnership
    An agreement by two or more persons to carry on, as co-owners, a business for profit.
  7. Define Articles of Partnership
    A written agreement that sets forth each partner's rights and obligations with respect to the partnership
  8. What does the Uniform Partnership Act (UPA) do?
    Governs the operation of partnerships in the absence of express agreement
  9. How to determine if a partnership exists
    • Sharing of profits and losses
    • Joint ownership of the business
    • Equal right in the management of the business
  10. What are some advantages of a partnership
    • Organized easily and inexpensive
    • Taxes are passed to the partners
    • Greater capital contribution - qualify for loans
  11. What are some disadvantages of partnerships
    personal liability - doesn't matter if one partner had nothing to do with the law suite
  12. Define Joint and Several Liability
    In partnership law, a doctrine under which a plaintiff may sue, and collect a judgment from, all of the partners together (jointly) or one or more of the partners separately (severally, or individually)
  13. Define Limited Liability Partnership (LLP)
    A hybrid form of business organization that is used mainly by professionals who normally do business in a partnership. An LLP is a pass-through entity for tax purposes, but a partner's personal liability for the malpractice of other partners is limited.
  14. What two categories of businesses would be attracted to LLPs
    • Professional service firms
    • Family Businesses
  15. How can someone be liable in a LLP
    participating in engagement
  16. Define Limited partnership
    A partnership consisting of one or more general partners and one or more limited partners
  17. Define General Partner
    in a limited partnership, a partner who contributes capital to the partnership but has no right to participate in its management and no liability for partnership debts beyond the amount of her or his investment
  18. Define Certificate of Limited Partnership
    The document that must be filed with a designated state official to form a limited partnership
  19. Define Corporation
    A legal entity formed in compliance with statutory requirements that is distinct from its shareholder-owners
  20. Key advantage of a corporation
    the liability of its owners (shareholders) is limited to their investments
  21. What is the disadvantage of a corporation
    • Taxed twice:
    • 1) Corporation as an entity pays taxes on income
    • 2) Shareholders pay income on profits that were distributed to them
  22. Define Limited Liability Companies (LLC)
    A hybrid form of business enterprise that offers the limited liability of a corporation and the tax advantage of a partnership
  23. Define Articles of Organization
    The document filed with a designated state official by which a limited liability company is formed.
  24. Define Member
    A person who has an ownership interest in a limited liability company
  25. Advantages of LLC
    • Liability of members is limited to the amount of their investment 
    • If the LLC has two or more members it can choose to be taxed as a Partnership or a Corporation
    • Allowed to have foreign investors
  26. What is a disadvantages of an LLC
    State LLC statutes or not uniform
  27. Define Operating Agreement
    An agreement in which the members of a limited liability company set forth the details of how the business will be managed and operated
  28. What are the two options for managing limited liability companies
    • Members managed LLC: all members participate in management , and decisions are made by majority vote
    • Manager managed LLC: the members designate a group of persons to manage the firm
  29. Define Dissociation
    The severance of the relationship between an individual and a business firm when the individual ceases to be associated with the carrying on of the firm's business
  30. When can a court order an LLC to be dissolved
    • Members engaged in illegal or oppressive conduct
    • No longer feasible to carry on the business
  31. What happens when an LLC is dissolved
    Members must collect, liquidate, and distribute the LLC's assets
  32. Define Joint Venture
    A joint undertaking for a specific commercial enterprise by two or more persons or business entities. A joint venture is treated like a partnership for federal income tax purposes
  33. Define Syndicate
    • a group of individuals or firms that join together to finance a project. A syndicate is also called an investment group.
    • Operate as a corporation or limited partnership
  34. Define Joint Stock Company
    A hybrid form of business organization that combines characteristics of a corporation and a partnership. Usually a joint stock company is regarded as a partnership for tax and other legal purposes
  35. Define Business Trust
    A form of business organization, created by a written trust agreement, that resembles a corporation.Legal ownership and management of the trust's property stay with the trustees, and the profits are distributed to the beneficiaries, who have limited liability
  36. Define Cooperative
    An association, which may or may not be incorporated, that is organized to provide an economic service to its members. Unincorporated cooperatives are often treated like partnership for tax an other legal purposes
  37. What are the 3 different classifications of franchises
    • Distributorship: manufacturer licenses a dealer to sell its product (automobile dealers)
    • Chain Style Business operation: 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 (McDonalds)
    • Manufacturing or processing-plant arrangement: franchisor transmits to the franchisee the essential ingredients or formula to make a particular product. The franchisee markets the product either at wholesale or at retail in accordance with the franchisor's standards. (Coca Cola)
Card Set
Business Law - Chapter 19
Business Law Today