Chapter 36

Sole Proprietorships

How they are created and funded ¬ Anyone who does business without creating a separate business organization has a sole proprietorship. ¬ Starting a sole proprietorship is often easier and less costly than starting any other kind of business, as few legal formalities are required. Generally, no documents need to be filed with the government to start a sole proprietorship. -How they are managed/governed and the rights that go along with that ¬ Sole Proprietorships are managed and governed by the owner. They are free to make any decision they wish. ¬ The owner receives all the profits and assumes all the risk. -How they function (and how might limited liability be granted or denied) ¬ The sole proprietor has unlimited liability, or legal responsibility, for all obligations that arise in doing business. ¬ Creditors can pursue the owner's personal assets to satisfy any business debts. -Jurisdictional issues ¬ Jurisdiction is wherever the owner resides. -How they are taxed ¬ A sole proprietor pays only personal income taxes (including Social Security and Medicare taxes) on the business's profits, which are reported as personal income on the proprietor's personal income tax return. -How they end ¬ When the owner dies, so does the business—it is automatically dissolved

Franchises

How they are created and funded ¬ Is an arrangement in which the owner of intellectual property—such as a trademark, a trade name, or a copy- right—licenses others to use it in the selling of goods or services. -How they are managed/governed and the rights that go along with that ¬ Federal regulation of Franchises o Industry-Specific Standards ♣ These laws protect the franchisee from unreasonable demands and bad faith terminations of the franchise by the franchisor. o The Franchise Rule ♣ 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 ¬ State Regulation of Franchises o State Disclosures ♣ Rules that require franchisors to provide presale disclosures to prospective franchisees. ¬ The Franchise Contract- specifies the terms and conditions of the franchise and spells out the rights and duties of the franchisor and the franchisee. o Payment for the Franchise ♣ The franchisee ordinarily pays an initial fee or lump-sum price for the franchise license o Business Premises ♣ The franchise agreement may specify whether the premises for the business must be leased, purchased or constructed. o Quality Control ♣ The day-to-day operation of the franchise business normally is left up to the franchisee. Nonetheless, the franchise agreement may specify that the franchisor will provide some degree of supervision and control so that it can protect the franchise's name and reputation. • If a franchisor exercises too much control over the operations of its franchisees, however, the franchisor risks potential liability.

Franchises

How they function (and how might limited liability be granted or denied) ¬ Franchisee is ultimately the one with unlimited liability while the franchisor has limited liability. -Jurisdictional issues ¬ He did not cover this in class nor is it in the book but this is what I found out online o A franchise agreement is a state level agreement and thus when it comes to jurisdiction it is where the location of the Franchise is. -How they are taxed ¬ He did not cover this in class nor is it in the book but this is what I found out online o It varies from state to state o franchise tax is that they are not based on the income of the entity itself but with the net income or net worth of the taxpayer or also known as the owner or owners of a certain franchise company. Usually, the franchise tax is based on the amount of shares of a stockholder; also, the franchise tax can be based on the asset of the individual. -How they end ¬ Grounds for Termination o Notice Requirements ♣ notice of termination must be given. If no set time for termination is specified, then a reason- able time, with notice, is implied.