Legal Final Exam Review

Legal Final Exam Review - Chapter 16: Sole Proprietorships,...

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Chapter 16: Sole Proprietorships, Franchises, and Partnerships I. Sole Proprietorships a. Sole proprietorship—simplest form of business i. Owner is the business and can range from small home office to large restaurant or construction firm ii. Over 2/3 of all businesses are sole proprietorships iii. Small enterprises—less than $1 million/year b. Advantages of Sole Proprietorship i. Proprietor receives all profits ii. Easier and less costly to start a sole proprietorship because few legal formalities are involved iii. More flexibility than partnership or corporation 1. proprietor is free to make any decisions concerning the business iv. pays only personal income taxes on the business’s profits, which is reported as the proprietor’s personal income v. allowed to establish tax exempt retirement accounts in the form of Keogh plans c. Disadvantages of the Sole Proprietorship i. As sole owner, the proprietor alone bears the burden of any losses or liabilities incurred by the business enterprise. 1. unlimited liability or legal responsibility for obligations ii. proprietorship has disadvantage of lacking continuity on the death of the proprietor 1. business is automatically dissolved when owner dies 2. new proprietorship is created when it is passed to family members or other heirs iii. proprietor’s opportunity to raise capital is limited to personal funds and the funds of those who are willing to make loans to him/her. 1. to raise more capital and to expand, the proprietor can join forces with an entrepreneur in a partnership or corporation 2. Internet has expanded the ability of sole proprietorships to market their products worldwide without greatly increasing costs II. Franchises a. Skip III. Partnerships a. Partnership—arises from an agreement, express or implied, between 2+ persons to carry on a business for a profit i. Partners are co owners of a business and have joint control over its operation and the right to share in its profits b. Agency Concepts and Partnership Law i. Two persons in a partnership agreement have a special relationship 1. similar to an agency relationship because each partner is deemed to be the agent of the other partners and of the partnership 2. agency concepts apply—especially imputation, knowledge of, and responsibility for act carried out within the scope of the partnership relationship 3. partners also bound by fiduciary tie that bind agent and principal ii. Different from agency law in that it is based on a voluntary contract between 2+ competent persons who agree to place some or a of their funds or other assets, labor, and skills in a business with the understanding that profits and losses will be shared 1. agency relationship, agent usually doesn’t have ownership interest in business or obligation to bear ordinary losses c. Uniform Partnership Act i. Uniform Partnership Act—governs operation of partnerships in absence of express agreement and has tried to reduce controversies relating to partnerships
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Legal Final Exam Review - Chapter 16: Sole Proprietorships,...

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