Term
| Sole Proprietorship characteristics |
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Definition
| individual acting as a business |
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Term
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Definition
easiest and least costly
subject to least gov regulation
individual gets all proftis
complete control
flexibility |
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Term
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Definition
individual gets all of profits and losses of business
total liability
limited to one owner
no continuity (when indiv. dies so does business)
limited ability to raise fund |
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Term
| Franchises characteristics |
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Definition
| arrangement by which the owner of a trademark, tradename or copyright licenses it to others to use |
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Term
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Definition
Manufacturing- franchisor discloses trade secrets to franchisee so they can manufacture francisor's procuct
Distruibutorship- franchisor grants franchisee license to sell their products
Chain style business- franchisee operates a business under franchisor's name |
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Term
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Definition
Easy to form
franchise fees and royalty payments
marketing support
need fewer employees
franchisees have vested interest in success of business
uniformity of procedures & QC |
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Term
| Disadvantages of franchise |
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Definition
cost of complying with fran. laws
limits on the ability of a franchisor:
1.terminate a franchise
2. withhold consent to a transfer of a franchise
3. change the competitive circumstances of franchise
inventory repurchase obligations (if franchise terminated)
liability risks |
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Term
| Partnerships (Characteristics) |
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Definition
*(seperate legal entity-not seperate taxable entity)
an association of 2 or more persons (individ. or another bus. entity) carrying on business as co-owners for PROFIT |
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Term
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Definition
General- has ONLY general partners
Limited- has both general and limited partners(at least 1 of each) |
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Term
| Advantages of partnerships |
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Definition
easily formed
minimal costs of formation
not a taxable entity (taxed at indiv. level instead)
owners may have an equal voice in management |
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Term
| Disadvantages of partnerships |
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Definition
Limited # of owners
Dissolved everytime:
1. Existing general partner leaves
2. NEW general partner joins
Unlimited liability of general partners
partners are taxed on their share of income whether they recieve it or not (some choose to allocate it to busines instead of themselves) |
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Term
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Definition
| Two or more persons combine their efforts in particular business enterprise and agree to share profits AND losses jointly or in a proportion to their contribution |
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Term
| Joint venture vs. partnership |
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Definition
JV is less formal associatioin & contemplates a single transaction or LIMITED activity, vs. PNSP contemplates the operation of an ongoing business
a partership is a legal entity in most states, JV is not
JV CANNOT sue OR be sued |
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Term
| Corporations( seperate legal entity) |
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Definition
can have continuous existants
employees= agents
*owners can come and go |
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Term
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Definition
Public- government (ex. utlities)
Private-
Profit- purpose to gain $
Non-profit-
Domestic- if formed in a state & still in that state
Foreign- if formed in another state (needs to register in every state does business in
Alien- from another country
Professional- formed by docs, lawyers, engineers etc. |
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Term
| Advantages of corportations |
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Definition
easiest way to raise substantial capital from a large # of investors
ownership may be divided into many seperate & unequal shares which are easily transferable (change of shareholders does not affect continuity of a corporation
limited liability of owners for debts (unless court pierces the corporate veil which it will do under some circumstances)
control can be vested in a minority of the shareholder by using techniques such as non voting or preferred stock.
can have perpetual existance (unless otherwise stated in articles of incorp)
certain laws do not apply (ex. usery laws)
owners may also be employees (entitled to benefits such as worker's comp, unemployment, etc. |
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Term
| Circumstances where court would pierce the corporate veil |
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Definition
1. Prevent fraud
2. Inadequate capitalization
3. Failure to recognize corporate formalities
* NO LIMIT for: criminal acts, malpractice, torts, etc. |
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Term
| Disadvantages of corporations |
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Definition
cost of formation & maintenance
double taxation of corporate income
1. at corporate level
2. by shareholders when they recieve dividends
must qualify to do business in all states where it intends to conduct intrastate business
vicarious liability
for federal jurisdictional purposes corportions are considered residents of
1. state of incorporation
2. state of principal place of business
3. state where it conducts intrastate business |
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Term
| Limited Liability Companies (seperate legal entity) |
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Definition
Combine
a. the corporate characteristics of limited liability for all ownes with
b. the tax benefits of a partnership (no tax liability for the entity- all profits and losses are passed through to owners) |
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Term
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Definition
Limited liability of owners (liability for corporate debts is limited to the amount of capital contribution)
can have perpetual existance
can elect to be taxed as a
1. unless LLC indicates that it wants to be taxed as a corp., IRS will tax it as a partnership
2. single member LLC's cannot be taxed as partnership automatically taxed as sole propietorship unless they indicate that they want to be taxed as a corporation |
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Term
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Definition
No uniform governing law- thus LLCs operating in more than one state not recieve consistant treatment
must register with Secretary of State
for jurisdictional purposes, may be residents of multiple states (residents of every state in which a member resides) |
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Term
| LLP (seperate legal entity) |
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Definition
| Combine the corporate characteristic of limited liability for all owners with the tax benefits of a partnership |
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Term
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Definition
LLP is NOT taxable entity
Limited liability for ALL partners |
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Term
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Definition
no uniform law
must register with secretary of state |
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