Chapter 17 Bus Law

Why Partnerships Exist

1.) A sharing of profits or losses 2.) A joint ownership of the business 3.) An equal right to be involved in the management of the business.

Disadvantages of Sole Proprietorship

1.) The proprietor alone bears the burden of any losses or liabilities incurred by the business enterprise. Creditors can go after the owner's personal assets to satisfy any business debts. 2.) Lacking continuity on the death of the proprietor. 3.) In raising capital, the proprietor is limited to his or her personal funds and any personal loans that he or she can obtain.

Advantages of the Sole Proprietorship

1.) The proprietor owns the entire business and receives all of the profits. 2.) Starting a sole proprietorship is often easier and less costly than starting any other kind of business, as few legal formalities are required. 3.) No documents need to be filed with the government. 4.) The sole proprietor is free to make any decision he or she wishes concerning the business--- such as whom to hire, when to take a vacations, and what kind of business to pursue. 5.) They can sell or transfer all or part of the business to another party at any time and does not need approval from anyone else. 6.) Pays only personal income taxes.

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 pays taxes on it.

Chain-style Business Operation

A franchise operates under a franchisor's trade name and is identified as a member of a select group of dealers that engage in the business.

Distributorship

A manufacturer licenses a deal to sell its product. Covers and exclusive territory.

Joint and Several Liability

A third party has the option of suing all of the partners together or one or more of the partners separately.

Joint Liability

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

Confession of Judgment

An act by a debtor that permits a judgment to be entered against him or her by a creditor, for an agreed sum, without the institution of legal proceedings.

Franchise

An arrangement in which the owner of a trademark, a trade name, or a copyright licenses others to use the trademark, trade name, or copyright in the selling of goofs or services.

Buyout Price

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

Articles of Partnership

Can include almost any terms that the parties wish, unless they are illegal or contrary, to public policy or statute.

Partnership by Estoppel

Exists and impose liability---but not partnership rights--- on the alleged partner or partners.

Pricing Arrangements

Franchises provide the franchisor with an outlet for the firm's goods and services.

Agency Concepts and Partnership Law

In a partnership, two or more persons agree to commit some or all of their funds or other assets, labor, and skills to a business with the understanding that profits and losses will be shared.

Implied Powers

Include the authority to make warranties on goods in the sales business and the power to enter into contracts consistent with the firm's regular course of business. To make admissions and representations concerning partnership affairs

Business Organization

May require business use a particular organizational form and capital structure. May also set out standards of operation in such aspects, of the business as sales quotas, quality, and record keeping.

Business Premises

May specify whether the premises for the business must be lease or purchased outright.

Dissociation

Occurs when a partner ceases to be associated in the carrying on of the partnership business.

Winding Up

Process of collecting, liquidating, and distributing the partnership assets.

Buy-Sell agreement

Provides for one or ore partners to buy out the other or others, should the situation warrant.

Duty of Loyalty

Requires a partner to account to the partnership for "any property, profit, or benefit" derived by the partner in the conduct of the partnership's business or from the use of its property.

The Franchise Rule

Requires franchisors to disclose certain material facts that a prospective franchisee needs in order to make an informed decision concerning the purchase of a franchise. Was designed to enable potential franchisees to weigh the risks ad benefits of an investment.

Sole Proprietorship

Simplest form of business organization. The owner is the business.

State Protection for franchisees

State legislation varies but often is aimed at protecting franchisees from unfair practices and bad faith terminations by franchisors. Requires franchisors to provide presale disclosures to prospective franchisees. Also required that a disclosure document be registered or filed with a state official

Uniform Partnership Act

The UPA defines a partnership as "an association of two or more persons to carry on as co-owners a business for profit". The intent to associate is a key element of a partnership, and one cannot join unless all other partners consent.

Quality Control

The day to day operation of the franchise business normally is left up to the franchisee.

Franchise Termination

The duration of the franchise is a matter to be determined between the parties.

The Franchise Contract

The franchise relationship is defined by a contract between the franchisor and the franchisee. The franchise contract specifies the term and conditions of the franchise and spells out the rights and duties of the franchisor and the franchisee.

Payment for the franchise

The franchisee ordinarily pays an initial fee or lump-sum price for the franchise license. May also require the franchisee to pay a percentage of the franchisor's advertising costs and certain administrative expenses.

Manufacturing Arrangement

The franchisor transmits to the franchisee the essential ingredients or formula to make a particular product.

Dissolution

The termination of a partnership

Industry-Specific Standards

These laws protect the franchisee from unreasonable demands ad bad faith terminations of the franchise by the franchisor.

Partnerships

Traditionally arises from an agreement, express or implied, between two or more person to carry on a business for profit. Governed both by common law and by statutory law.

Location of the Franchise

Typically, the franchisor determines the territory to be served. Some contracts give the franchise exclusive rights, or "territorial rights", to a certain geographic area.