Ch. 17 Small Business Organizations

a court will not presume that a partnership exists if shared profits were received as a payment of:

-a debt by installments or interest on a loan -wages of an employee or for the services of an independent contractor -rent to a landlord -an annuity to a surviving spouse or representative of a deceased partner -a sale of the goodwill (valuable reputation of a business viewed as an intangible asset) of a business or property

events that cause dissociation

-by a partner's voluntarily giving notice of an express will to withdraw -occurence of an event specified in partnership agreement -unanimous vote of other partners under certain circumstances -order of court or arbitrator if the partner has engaged in wrongful conduct that affects business -partner's declaring bankruptcy, assigning his or her interest in the partnership for the benefit of creditors, or becoming physically or mentally incapacitated, or death

when unanimous consent is required

-decision to alter the essential nature of firm's business -change capital structure of partnership -amend terms of partnership agreement -admit a new partner -engage in a completely new business -assign partnership property to a trust for the benefit of creditors, or allow a creditor to enter a judgment against the partnership, for an agreed sum, w/o use of legal proceedings -dispose of partnership's goodwill -submit partnership claims to arbitration -undertake any act that would make further conduct of partnership business impossible

types of franchises

-distributorship: manufacturer (franchisor) licenses a dealer to sell its product, often covers an exclusive territory -chain-style business operation: 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, follow standardized methods of operation -manufacturing arrangements: processing-plant, franchisor transmits to the franchisee the essential ingredients or formula to make a particular product

fiduciary duties of partner

-duty of care -duty of loyalty (can be breached by self-dealing, missing partnership property, disclosing trade secretes, or usurping a partnership business opportunity)

rights of partners

-management -interest in partnership -compensation -inspection of books -accounting -property

agency vs partnership

-partnership: each partner has an ownership interest (commit funds or other assets, labor, and skills to business with the understanding that profits and losses will be shared)

a partnership's assets are distributed according to the following priorities: (creditors' claims for winding up and distribution of assets)

-payment of debts (including those owed to partner and non partner creditors) -return of capital contributions and distribution of profits to partners

disadvantages of sole proprietorship

-proprietor alone bears burden of any losses or liabilities incurred by business enterprise (unlimited liability for all obligations that arise) -personal assets at risk (creditors can pursue the owner's personal assets to satisfy any business debts) -lacks continuity after death of proprietor -in raising capital, proprietor is limited to his or her personal funds and funds from any loans that he or she can obtain for the business

advantages of sole proprietorship

-proprietor owns entire business and receives all the profits -easier and less costly -no documents needed to be filed with government to start -flexibility (free to make any decision) -pays only personal income taxes -allowed to establish certain retirement accounts that are tax-exempt until funds are withdrawn

elements of a partnership

-sharing of profits or losses -a joint ownership of the business (intent is key) -an equal right to be involved in the management of the business

effects of dissociation

-terminates some of rights of dissociated partner -requires partnership purchase his or her interest -alters liability of parties to third parties

Franchise Rule

-written (or electronically recorded) disclosures -reasonable basis for any representations -projected earnings figures -actual data -explanation of terms (termination, cancellation, and renewal)

pass-through entity

a business entity that has no tax liability- the entity's income is passed through to the owners of the entity, who pay income taxes on it

joint and several liability

a third party has the option of suing all the partner together (jointly) or one or more of the partners separately (severally), doesn't extinguish others' liability

joint liability

a third party must sue all the partners as a group, but each partner can be held liable for the full amount

winding up

actual process of collecting, liquidating, and distributing partnership assets

partnership

arises from an agreement (express or implied) between two or more persons to carry on a business for a profit, intent is key element, must have consent

franchise

arrangement in which owner of intellectual property (such as a trademark, trade name, or copyright) licenses others to se it in the selling of goods or services, governed by contract law

buyout price

based on amount that would have been distributed to partner if the partnership had been wound up on the date of dissociation

extent of implied authority is generally ________ for partners than for ordinary agents

broader

buy-sell agreement

buyout agreement, provides for one or more partners to buy out the other or others if the situation warrants (mandatory if a partner's dissociation doesn't result in a dissolution)

articles of partnership (partnership agreement)

can include almost any terms that the parties wish, unless they're illegal or contrary to public policy or statute -basic structure -capital contributions -sharing of profits and losses -management and control -accounting and partnership records -dissociation and dissolution -arbitration

partnership by estoppel

may at the court's discretion be imposed for purposes of fairness, court can prevent those who present themselves as partners (but who are not) from escaping liability if a third person relies on an alleged partnership in good faith and is harmed as a result

entrepreneur

one who initiates and assumes the financial risk of a new business enterprise and undertakes to provide or control its management

charging order

order granted by court to a judgment creditor that entitles the creditor to attach profits or assets of a partner on dissolution of the partnership

sole proprietorship

owner is the business, anyone who does business without creating a separate business organization

partnership at will

partnership can be dissolved at any time if no fixed duration is specified

partnership for a term

specified duration of partnership

information return

tax return submitted by a partnership that reports the income earned by the business , partnership as an entity doesn't pay taxes on the income received by the partnership. a partner's profit from the partnership is taxed as individual income to the individual partner

dissolution

termination of partnership, commencement of winding up process

acts without authority

ultra vires, partnership won't be liable if third parties know partner has no authority

dissociation

when a partner ceases to be associated in the carrying on of the partnership business, partner always has power to dissociate but may not have right to associate