Chapter 40: Types of Business Organizations

Specialized Forms of Organizations includes... -Joint Ventures -Unincorporated Associations -Cooperatives

*JOINT VENTURES* -*Joint venture*: is a relationship in which two or more persons or entities combine their labor or property for a single business undertaking and share profits and losses equally or as otherwise agreed -ex: a bus service might have a joint venture with a online ticket selling service -Joint venture is similar to a partnership but differs in that a joint venture typically involves pursuit of a single limited purpose rather than an ongoing enterprise, although its accomplishment make require several years ---A partnership is generally a continued business or activity but may be expressly created for a single transaction -*Duration of Joint venture*: It continues for the time specified in the agreement. If there is no fixed-duration, a joint venture is terminated at the will of any participant or will last until a project (i.e construction project) is compete. -*Liability to third party*: If there is a joint venture, the fault or negligence of one venture will be imputed to the other venturers. *UNINCORPORATED ASSOCIATIONS* -*Unincorporated Associations*: is a combination of two or more persons for the furtherance of a common purpose -No particular form of organization is required -Any conduct or agreement indicating an attempt to associate or work together for a common purpose is sufficient -An incorporated association cannot sue or be sued in its own name -Generally, the members of an incorporated ass. are not liable for the debts or liabilities of the association by the mere fact that they are members --It must usually be shown that they authorized or ratified the act in question and if it is shown, then that member has unlimited liability for the act. *COOPERATIVES* -*Cooperative*: consist of a group of two or more independent persons or enterprises that cooperate for a common objective or function --I.e: farmers may pool their farm products and sell them. Consumers may likewise pool their orders and purchase goods in bulk -*Incorporated Cooperatives*: statues commonly provide for the special incorporation of cooperative enterprises --Such statues provide that any excess of payments over the cost of operation shall be refunded to each participant member in direct proportion to the volume of business that the member has done with the corporation ---This system contrasts with the payments of a dividend by an ordinary business corporation *Antitrust Law Exemption*: When members of a sellers' cooperative agree to sell all products at a common price, the agreement to fix prices is basically an agreement in restraint of trade and a violation of antitrust laws. The Capper-Volstead Act expressly exempts normal selling activities of farmers' and dairy farmers' cooperatives from the operation of the federal Sherman Antitrust Act as long as the cooperatives do not conspire with outsiders to fix prices

The kind of legal organization that you should have for your business will depend on your need for money, personnel, control, tax and estate planning, and protection from liabilities

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Franchise Business Format

Franchising is a method of doing business, NOT a form of business organization A commercial business arrangement is a *franchise* if it satisfied three definitional elements: The franchisor must... (1) Promise to provide trademark or other commercial symbols (2) Promise to exercise significant control or provide significant assistance in the operation of the business (3) Require a minimum payment of at least $540 during the first 6 months of operation *Franchisor*: is the party granting the franchise *Franchisee*: is the person to whom the franchise is granted -There are three principal types of franchises (1) *Manufacturing or Processing franchise*: in which the franchisor grants the franchisee authority to manufacture and sell products under the trademark of the franchisor (2) *Service Franchise*: in which the franchisee renders a service to customers under the terms of a franchise agreement (3) *Distribution franchise*: in which the franchisor's products are sold to a franchisee, who then resells to customers in a geographical area *FRANCHISE AGREEMENT* -*Franchise agreement*: the respective rights of the parties are determined by the contract existing between them --The agreement sets forth the rights of the franchisee to use the trademarks, trade name, trade dress, and trade secrets of the franchisor ---*Trademark*: Mark that identifies a product ---*Trade Name*: name under which a business is carried on and, if fictitious, must be registered ---*Trade Dress*: Product's total image including its overall packaging look ---*Trade Secret*: Formula, device, or compilation of information that is used in one's business and is of such a nature that it provides an advantage over competitors who do not have the information *SPECIAL PROTECTION UNDER FEDERAL AND STATE LAWS* -Federal and state legislation may protect franchisees in certain industries *DISCLOSURE* -the offer and sale of a franchise requires compliance with both federal and state laws -

Principle Forms of Business Organizations Includes... -Individual Proprietorships -Partnerships, LLPs, and LLCs -Corporations

The law of business organizations may be better understood if the advantages and disadvantages of *Proprietorships, partnerships, and corporations* are first considered *INDIVIDUAL PROPRIETORSHIP* -*Sole or individual Prop.*: is a form of business ownership in which one individual owns the business --The owner may be the sole worker of the business or employ as many others as needed to run the concern -Most commonly used in retail store, service businesses, and agriculture *Advantages*: -the owner is not required to expend resources on organizational fees. -The sole owner controls all decisions and receives all the profits -net earnings of the business are not subject to corporate taxes but are taxed only as personal income *Disadvantages*: -Proprietor is subject to unlimited personal liability for the debts of the business and cannot limit the risk -The investment capital in the business is limited by the resources of the proprietor -B/c contracts for business are made by the owner or in the owners name by an agent, the authority to make contracts terminates on the death of the owner, and the business is subject to disintegration *PARTNERSHIPS, LLPs, and LLCs* -*Partnership*: involves the pooling of capital resources and the business or professional talents of two or more individuals whose goal is to make a profit --EX include- law firms, medical associations, and architectural and engineering firms -*Limited Liability Partnerships (LLP):* A partnership in which some or all partners have limited liabilities. In an LLP, each partner is not responsible or liable for another partner's misconduct or negligence --Most partnership firms today are likely to convert to this -*Limited Liability Company (LLC)*: A partnership for federal tax treatment and the limited liability feature of the corporate for form of business organizations *Advantages* -Partnerships allows for individuals to pool resources and then initiate and conduct there business without the requirements of a formal organizational structure *Disadvantage* -Partnerships: unlimited personal liability of each partner and the uncertain duration of the business b/c the partnership is dissolved by the death of one partner --LLC solves the problem of unlimited personal liability --Professional partnerships that convert to an LLP shield innocent partners from personal liability beyond their investment in the firm *CORPORATIONS* -*Corporations*: exist to make a profit and are created by government grants --State statutes regulating the creation of corporations require a corporate structure consisting of shareholders, directors, and officers -Shareholders:owners of the business, who elect a board of directors who are responsible for managing the business -Directors: employ officers who serve as the agents of the business and run day-to-ay operations -Corporations range in size from incorporated one-owner enterprises to large multinational concerns *Advantages* -The shareholders risk of loss from the business is limited to the amount of capital the invested in the business or paid for shares -Free transferability of corporate shares --These both are very attractive to investors -A corporation is a separate legal entity capable of owning property, contracting, suing, and being sued in its own name -Has perpetual life; death of owner has no legal effect on the corporate entity *Disadvantages* -required to pay corporate income taxes -Shareholders are required to pay personal income taxes on the amount received from dividends --Both these are a form of *double taxation* -Incorporation involves the expenditure of funds for organizational expenses -To become a corporation, you must submit prepare documents and there is a filing fee -State corporation laws may also require filing an annual report and other reports