BusLaw 305 Chapter 27

Federal statutes define a(n) _______ as an arrangement of a continuing commercial relationship for the right to operate a business with a particular trade name or sell the seller's branded goods.

franchise

The simplicity of the _______ makes this entity a top choice for start-up businesses with relatively low annual revenues and expenses.

sole proprietorship

Most _______ are relatively small in terms of assets and revenues, and are not restricted in terms of the number of _______ and can operate in as many locations as the principal desires.

sole proprietorships, employees

A franchise agreement that covers _______ rights usually provides the franchisee with an exclusive geographic area.

territory

A franchise agreement generally covers the following: _______. (Choose all the correct answers)

territory rights term of the agreement franchise fees

Sole proprietorships are taxed as pass-through entities.

True

In some states, if Joan Gates does business as "Gates Consulting" she would file for a certificate of _________ with a local or state office.

fictitious name

A close cousin to a commercial loan is a commercial ______ which allows a proprietor to draw against a predetermined credit limit.

line of credit

If Joan Gates wishes to "do business as" Gates Consulting, she would create a(n) _______ or DBA with a local or state office. (Choose all correct answers)

fictitious name trade name

The easiest single-person ownership entity to form and maintain is a(n) _______.

sole proprietorship

A(n) _______ should be thought of as a method of conducting business that centers on a contractual relationship rather than as a business entity.

franchise

Which of the following methods is/are available to capitalize a sole proprietorship?

Cannot sell equity. Can only use private or commercial loans. Commercial loans often require collateral.

Which of the following factors in choosing an entity refers to the business's option for funding its operations?

Capitalization

Sole proprietorships are limited in their options for raising money. These options include which of the following? (Choose ALL correct answers).

- Financing using the proprietor's personal resources. - Financing the business through debt.

In a sole proprietorship, all debts and liabilities of the business are also personal debts and liabilities of the __________. (Choose all the correct answers)

- owner - sole proprietor - principal

The best choice of business entity is driven primarily by the following factors: _______. (Choose all the correct answers)

- risk - tax - operational objectives

Unsecured loan

A credit card is the cost common example.

Commercial loan

A loan from a bank that is used for a specific purpose (E.G., purchase of a vehicle) falls into this category.

Line of credit

Because Winston only needs to draw money as necessary during the slow season, this option is commenderd a commercial ___________.

Which of the following is/are event(s) of termination for a sole proprietorship?

Ends upon the death of the principal.

A sole proprietorship can be passed on to heirs though gifts or an estate.

False

One advantage to being a sole proprietor is protection of the proprietor's personal assets for business debts.

False

The _______ is the federal regulatory authority that oversees the regulation of franchisors.

Federal Trade Commission (FTC)

Franco is a sole proprietor who does business as Fraco's Computer Consulting. After starting up the business out of his basement, he lands a big client and begins to lease office space at a local office complex. He loses the big client in one month and can no longer generate enough business revenue to sustain the lease payments. He ends up owing his landlord %,000. Assuming no business assets exist, which is true?

Franco is personally liable.

A principal is one who has ownership in a business entity.

True

All of the following are true about a sole proprietorship entity except: a. It does not protect the personal assets of the principal. b. It is formed by filling a set of forms with the federal and state government. c. It provides pass-through taxation for the principal. d. It is a single-person entity. e.It may be capitalized through a loan.

In many states, no formal filing is required unless using a trade name. No federal filing is required at all.

Private loan

Loans from family and friends fall into this category.

_______ loans are typically through individuals who negotiate such items as interest rate directly with the proprietor.

Private

_______ loans come from family members and friends and are paid back according to their individual agreement.

Private

_______ have no oversight committees (such as a board of directors), do not require any agreements among principals, and may be converted to another form of entity.

Sole proprietorships

Sole proprietors are limited in their options for raising money.

True

A sole proprietorship is terminated either by _______ or by _______ in the case of the death or personal bankruptcy of the proprietor. (Choose two correct answers)

an express act of the principals operation of law

A proprietors ownership interest in a sole proprietorship _______ to her heirs through a gift or an estate.

cannot pass

A(n) _______ loan is usually collateralized by an asset of equivalent value typically consisting of the proprietor's personal assets to get a lower interest rate.

commercial

Sole proprietors may raise money through _______ loans which is a more formal process from a lender such as a bank.

commercial

A sole proprietorship is generally not subject to _______ income taxation, and no tax return is filed on behalf of the business.

corporate

The Federal Trade Commission regulations focus on mandatory _______ regarding the financial condition of the franchise, success rates, and other important

disclosures

When choosing a business entity, principals should consider the following factors: _______. (Choose all the correct answers)

ease of formation liability taxation

A franchise involves the two parties: the _________ who is a business entity that has a proven track record of success, who sells to a(n) _______ the right to operate the business and use the business's trade secrets, trademarks, and products.

franchisor, franchisee

The principal of a sole proprietorship reports business income and expenses on her own _______ and pays taxes on business income (or deducts business losses) based on the applicable _______.

individual tax return, individual tax rate

When choosing a business entity, principals should carefully consider the extent of _______ for debts and contracts.

personal liability

In the context of business entities, ________ is a generic word for individuals who are entitled to the profits of a business based on their (Choose all correct answers)

principal

Each form of business entity has its attendant advantages, drawbacks, and legal consequences for the owners, known as _______, of the business. (Choose all correct answers)

principals

The biggest advantage of a(n) _______, which is typically secured by collateral, is that the borrower only pays interest on the funds actually drawn instead of the full amount of a loan.

secured line of credit

Businesses that are _______ and have a relatively low potential for liability usually do not require the protection and flexibility offered by more complex forms of business entities.

self-funded

Most states recognize at least _______ forms of business entities.

six

The chief drawback to the _______ as a form of entity is the owner's complete lack of protection for unpaid debts and liabilities of the business.

sole proprietorship