lesson 5.2 Partnerships and Franchises

What issues are addressed in the articles of a partnership?

- each partner's rights and responsibilities, including how partners will share profits and losses - how new partners can join the firm - the duration of the partnership - tax responsibilities

What is the relationship between a franchiser and a franchisee?

A franchiser is a business that, in exchange for a fee and loyalties, give the right to a franchise to operate a business under the franchiser's name in a certain area.

How is owning a business franchise similar to being in a partnership? How is it different?

Owning a business franchise is similar to being in a partnership in that the franchise has a business associated with rights and responsibilities. The franchiser, different in that a franchisee is a corporation rather than an individual, has a degree of power individual, and doesn't actively participate in the business.

Based on the opening paragraphs of the section, what are the keys to determining if a partnership is appropriate?

The willingness to share in the economic rights and the responsibilities of pwning a business.

Why do franchisers limit franchisees to a particular area?

To avoid having too many units in a geographic area, which would result in over supply and a decline in revenue.

Which disadvantage of partnerships is unique to one type? Which is shared by all types?

Unlimited liability is unique to general partnerships. The potential conflict between partners and for the partnership terminally is common to all partnerships.

Supposed someone with whom you are about to enter a partnership says to you, "We don't need articles of partnership. We trust each other." What would you say?

A partnership is a serious business arrangement and the best way to protect yourself and your interests is to hire a lawyer and have a formal agreement tailored to your situation drawn up.

Use the graphic organizer to record the advantages and disadvantages of franchises.

Advantages of Franchises - ease of start up - easy and inexpensive to establish - work to develop an articles of partnership - ability to raise capital - offer advantages to employees - responsibility for the business may be shared Disadvantages of Franchises - have the potential for conflict - at least one partner has unlimited liability - lack of permanence

What are the chief characteristics of a general partnership?

All partners share equally in both responsibility and liability based on how much they contribute.

Why do you think people find it easier to obtain loans than a person who operates a sole proprietorship?

Since they can raise more capital, they may be sounder financial footing than many sole proprietorships, since there are multiple owners, they appear more stable. They may have relationships with bankers.

Use the graphic organizer to compare the characteristics of the three types of partnerships. For each type of partnership, identify each type of partner involved. Tell whether that partner's liability is limited or full. Then tell whether that partner's participation in the management of the business is limited or full.

Types of Partnerships general partnerships - unlimited liability - equally responsible for business management limited partnership - generally equal responsibility and liability - equally responsible for business management limited liability partnership - limited liability - no role in business operations

Think about how limited partners and general partners take part in business operations. How is the participation of limited partners different from the participation of general partners?

General partners have unlimited liability but take part in business operations. Limited partners have limited liability and no role in business operations.

What can two partners do to solve problems they are experiencing?

If they had drawn up a partnership agreement, they could seek the advice of a lawyer. They could also go to a mediator or some other advisor.