Chapter 21 Forms of business Organization

What is a S Corporation?

A business organization formed under federal tax law that is considered a corporation, yet is taxed like a partnership. No more than 100 shareholders. Income is taxed when distributed to shareholders.

What is a business trust?

A business organization governed by a group of trustees(on behalf of) who operate the trust for the beneficiaries.

What is a sole proprietorship?

A business organization in which you, as the sole proprietor, are in sole control of the management and the profit and losses. Most popular form of business organization.

What is a franchise?

A business that exists because of an arrangement between the franchisor(owner of a trade name or trademark) and the franchisee(a business that sells goods or services under the trade name or trademark). They can be chain-style. Distributorship - license to sell. Manufacturing arrangement - provided with the formula or necessary ingredient to manufacture a product.

What is a corporation?

A legal entity formed by issuing stock to investors, who are the owners(shareholders) of the corporation. Also subject o double taxation - The corporation itself, and shareholders in the taxation of dividends.

What is a joint stock company?

A partnership agreement in which company members hold transferable shares whereas all the goods of the company are held in the names of the partners. Mixture of corporation and partnership.

What is a joint venture?

A relationship between two or more persons or corporations created for a specific business undertaking. Taxed like partnerships. Usually for a single purpose, once fulfilled, dissolution occurs.

In what two situations does partnership by estoppel exist?

A third party is aware of misrepresentation of partnership and consents to the misrepresentation(doesn't correct it). A nonpartner has represented himself or herself as a partner, and a third party reasonably relies on this information to his or her detriment(non partner can be held liable).

According to the Uniform Partnership Act (UPA), what is a partnership?

A voluntary association between two or more persons who co-own a business for profit.

What is a syndicate business organization?

An investment group that comes together for the explicit purpose of financing a specific large project. Sports team purchase.

What is a cooperative business organization?

An organization formed by individuals to market products. Members pool resources Dividends may be received. May be incorporated or unincorporated.

What is a Limited Liability Company?

An unincorporated form of business organization that many people see as combining the most advantageous features of partnerships and corporations. Tax advantages and management flexibility of a partnership. Limited Liability like a corporation. Born of the United Limited Liability Company Act(ULLCA) of 1995 Not required to hold annual meetings or draft meeting minutes. Record keeping is simple and more flexible. Flexibility to offer members alternative ways to structure management. Members have a choice as to how they want to be taxed.

What is expected under franchise law?

Controlled under contract law, and the UCC FTC has a franchise rule to provide a prospectus Automobile Dealer's Franchise Act 1965 - prohibits termination in bad faith. Petroleum Marketing Practices Act of 1979 - reasons to terminate gas station franchises.

What are the advantages of a partnership?

Creation is easy. Income is taxed individually for each partner. (Partners can deduct business losses) Ability to choose the people you want to be partners with, on the basis of partnership law.

What duties do partners have to one another?

Duty to be loyal. Fiduciary duty to the other partners.(most important) Duty of obedience. Duty of care.

How is a partnership formed?

Explicit written agreement is not required, but strongly advised. Also known as Articles of Partnership.

What are some advantages of opening a franchise?

Franchisor helps with opening the business Franchisee benefits from the strong trade name or trademark of the Franchisor. Worldwide advertising Income without large risk

What are the different types of partnerships?

General Partnership- Profits & management responsibility's shared equally, and unlimited personal liability for the partnerships debts. Limited Partnership- One general, and one limited partner; no liability beyond capital contributed; limited partner does not take part in day to day. Limited Liability Partnership- malpractices limited to the partnerships assets

What are the five factors for determining whether a joint venture exists?

Joint ownership and control of property. Sharing of expenses, profits, and losses and having and exercising some voice in determining the division of net earnings. Community of control over and active participation in the management and direction of the business enterprise. The intention of the parties expressed or implied. Fixing of salaries by joint agreement.

What is a benefit corporation?

Known as a B-Corp, is a for profit corporation with the same limited liability and taxation of a traditional corporation but created with a greater corporate focus on making a positive impact on society and the environment.

What is included in a typical article's of partnership?

Names of the partners; as well as the name of the partnership. Duration of the partnership. Division of profit and losses. Division of management duties. State exactly the capital contributions of each partner.

What are some disadvantages of a partnership?

Partners are personally liable for the debts of the partnership.

What are some disadvantages of the sole proprietorship organization?

Personally liable for any contracts, debts, losses, and all other obligations. Sole proprietorship terminates when the sole proprietor dies. Limited to personal funding.

Why might an entrepreneur choose to create a sole proprietorship over other business organizations?

Requires very few legal formalities.(ease of creating) Sole proprietor has complete control of the management of the business. Sole proprietor keeps all the profits, and taxed at the personal income level.

What are the major forms of business organizations?

Sole Proprietorship Partnership Limited Liability Partnership Corporation Limited Liability Company

What are some reasons for rightful dissolution of a partnership?

Term has expired. Partnership meets its objective. A partner withdraws at will. A partner withdraws in accordance with the partnership agreement. A partner is expelled. A partner dies. A partner is bankrupt. Partnership becomes illegal. A partner is determined to be insane. A partner becomes incapacitated. Partnership can only continue at a loss. A disagreement undermines the partnership. Other reasons that necessitate dissolution.

How does a partnership terminate?

Through two stages: Dissolution stage - when any partner stops fulfilling the role of a partner to the business(by default or by choice). Once a partnership is dissolved, the winding up stage begins - the activity of completing unfinished partnership business; collecting and paying debts; collecting partnership assets and taking inventory.

How is an LLC formed?

filing articles of organization with the state. They must qualify in every state they wish to operate. Filing certificate and obtaining business license. Referred as a foreign company in any other state operated. Governed by the LLC Rules within the state it was created. LLC is considered a citizen in every state in which it's members reside.(LLCs can avail themselves of the federal courts by limiting its members to one or a few states. Operating agreement is drawn up. Specify management as member managed or manager-managed. Dissolved by - specified in operating agreement; 90 consecutive days of no members, by court order; dissociation does not dissolve and LLC.