BUL 3330 Final
What are two examples of companies that started out as sole proprietorships?
1. Ebay 2. Annie's Homegrown
What are four advantages of sole proprietorships?
1. Profits 2. Flexibility 3. Benefit in Lawsuits (the business is indistinguishable from the owner) 4. Don't have to file any special files to start it other than a license
What are 6 examples of rightful dissolutions?
1. Term of a partnership ends 2. A partnership at will (without a term) is dissolved by one or more partners 3. All the partners agree to dissolve even if the partnership has a term 4. A partner has been declared incompetent in any judicial proceeding or is shown to be of unsound mind 5. A partner has become incapable of performing his or her part of the partnership contract, for example, because of extended illness 6. The partnership business can continue only at a loss
What are the three factors that must be proven by a preponderance of the evidence to show the veil was pierced?
1. The members - managers dominated and controlled the corporation to such an extent that the LLC's independent existence was in fact non-existent and the members - managers were in fact alter egos of the LLC 2. The LLC must have been used fraudulently or for an improper purpose 3. The fraudulent or improper use of the LLC form caused injury to the claimant
What does it mean when a corporation is called a legal entity?
A corporation is an entity apart from its shareholders, with entirely distinct rights and responsibilities
What does it mean when a corporation is called a creature of the state?
A corporation typically may be formed only with substantial compliance with a State incorporation statute
What is a corporation?
An entity created by law whose existence is distinct from that of the individuals whose initiative, property, and control enable it to function
What is a franchise?
Arrangement in which the owner of intellectual property - such as a trademark, a trade name, or a copyright - licenses others to use it in the selling of goods or services. A franchisee (a purchaser of a franchise) is generally legally independent of the franchisor (the seller of the franchise) ex: McDonalds
What is a cooperative?
Association that is organized to provide an economic service to its members (or shareholders)
True or False: Nonprofits thus are partnerships
False
What is explanation of terms when it comes to FTC franchise rules?
Franchisors are also required to explain termination, cancellation, and renewal provisions of the franchise contract to potential franchisees before the agreement is signed
George is a partner in a law firm. One of George's third cousins asks him to be the administrator of a friend's estate. George decides to serve as administrator without the knowledge and/or consent of the partnership. Has George violated the fiduciary duty of loyalty?
No because a partner in a law firm may serve as an administrative or executor of an estate without competing with the law firm for business
What is the quality control when it comes to franchise contracts?
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 aka McDonalds employee have to wear the same thing
What is the business premises when it comes to franchise contracts?
The franchise agreement may specify whether the premises for the business must be leased or purchased outright. The agreement will specify whether the franchisor or the franchisee is responsible for supplying equipment and furnishings for the premises
What is the payment for the franchise when it comes to franchise contracts?
The franchisee ordinarily pays an initial fee or lump-sum price for the franchise license (the privilege of being granted a franchise). The franchise agreement may also require the franchisee to pay a percentage of the franchisor's advertising costs and certain administrative expenses. Generally, the franchisor also receives a stated percentage of the annual (or monthly) sales or volume of business done by the franchisee
What are torts when it comes to partnership liability?
The partnership is liable for loss or injury caused by any wrongful act or omission or other actionable conduct of any partner while acting within the ordinary course of the business or the authority of his/her copartners; the partners are jointly and severally liable
What is breach of trust when it comes to partnership liability?
The partnership is liable if a partner in the course of the partnership's business or while acting with authority of the partnership breaches a trust by misapplying money or property entrusted by a third person
Which is most common? a. sole proprietorship b. LLC c. corporation
a. sole proprietorship
Woody Wilson and Garret Levy entered into a partnership for a 5-year period to repair appliances. Wilson did the work in the store and Levy made the service calls. Wilson discovered that Levy has been pocketing some of the payments for the service calls and not turning them all in to the partnership. Wilson: a. Cannot sue Levy for breach of the partnership contract b. May bring suit to demand a formal accounting and dissolution of the partnership c. Cannot sue Levy in tort for fraud d. May take all of the funds (to make up for Levy's dishonesty) and walk away from the partnership
b. May bring suit to demand a formal accounting and dissolution of the partnership
What happens when another company buys the franchise?
the franchise dissovles
What is a partnership?
1. An association of two or more persons to carry on as co-owners a business for profit 2. a legal entity distinct from its individual partners. The partnership can acquire, own and dispose of property, enter into contracts, commit wrongs, sue, and be sued 3. Partners also carry unlimited liability for the obligations and debts of the partnership 4. Each partner has an equal right to control of the partnership
What are the four requirements when forming an LLC?
1. Filing- require the central filing of articles of organization in a designated State office 2. Name- the name of the LLC must include the words limited liability company or the abbreviation LLC 3. Contribution- The contribution of a member to an LLC may be cash, property, services rendered, a promissory note, or other obligation to contribute cash, property or to perform services 4. Operating Agreement- The basic contract governing the affairs of an LLC and stating the various rights and duties of the members
What are the four facts about member-managed LLC?
1. LLCs are assumed to be member-managed unless the articles of organization provide otherwise 2. all of the members participate in management, and decisions are made by majority vote 3. The members designate a group of persons to manage the firm 4. The management group may consist of only members, both members and nonmembers, or only nonmembers
What are the 6 attributes of a corporation?
1. Legal Entity 2. Creature of the State 3. Limited Liability 4. Free Transferability of Corporate Shares 5. Centralized Management 6. Citizen
What are the duties of loyalties for partnerships?
1. Not to use partnership benefits without the consent of the partners 2. ****Refrain from self-dealing***** 3. Refrain from competing with the partnership
What are the partnership liabilities?
1. Torts 2. Breach of Trust 3. Crimes 4. Antecedent Debts 5. Subsequent Debts
What are three disadvantages of sole proprietorships?
1. Unlimited Liability 2. Personal Assets at Risk 3. Lack of Continuity
What are the five federal and state regulation of franchising required by the franchisor?
1. Written (or electronically recorded) disclosures 2. Reasonable basis for any representations 3. Projected earnings figures 4. Actual data 5. Explanation of terms
What are the three elements needed for a partnership to exist?
1. an association of two or more persons 2. conducting a business for profit (Nonprofits thus are excluded from this definition. Passive co-ownership of property, by itself, also is excluded) 3. co-owned
The right to transfer interest in a partnership doesn't include...?
1. participation in the management or conduct of the partnership business 2. right to access information concerning partnership transactions 3. the right to inspect or copy the partnership books or records
What are the items needed to form a partnership agreement?
1. partnership name 2. the nature 3. scope 4. duration of the partnership 5. provisions as to the finances 6. profits of the partnership 7. description of the duties of each partner
What are the ways to form a partnership?
1. the parties' conduct (co-owners) 2. oral or written agreement between the parties 3. an informal arrangement
More than ____ of all U.S. businesses are sole proprietorships.
2/3
What is the opportunity to cure a breach when it comes to termination of franchise?
A franchise agreement may state that the franchisee may attempt to cure an ordinary, curable breach within a certain period of time after notice so as to postpone, or even avoid, the termination of the contract. Even when a contract contains a notice-and-cure provision, however, a franchisee's breach of the duty of honesty and fidelity may be enough to allow the franchisor to terminate the franchise
What is a limited liability company?
A limited liability company is a noncorporate business organization that provides limited liability to all of its owners (members) and permits all of its members to participate in the management of the business
What is the right to information and inspection of the books?
A partner also has the right, and the duty, to access the partnership's books and records and copy them during ordinary business hours. A partnership agreement CANNOT unreasonably restrict a partner's right to access to partnership books and records.
What are crimes when it comes to partnership liability?
A partner is NOT criminally liable for the crimes of his/her partners unless he/she authorized or participated in them
What is duty of obedience when it comes to a partnership?
A partner owes to his/her partners a duty to act in obedience to the partnership agreement and to any business decisions properly made by the partnership. Any partner who violates this duty is liable individually to his/her partners for any resulting loss.
What is duty of care when it comes to a partnership?
A partner owes to the partnership a duty of faithful service to the best of his/her ability. The duty of care in handling partnership business is limited to refraining from grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of the law. Please note that the duty of care DOES NOT include simple, ordinary negligent conduct
What is the right to choose associates?
A person may become a partner in a partnership only with a consent of ALL the partners. However, the partnership agreement may revise this general rule to provide admission of a new partner by a less than unanimous vote
What is the right to return of capital contribution?
Absent an agreement to the contrary, a partner DOES NOT have a right to receive a distribution of the capital contributions in his/her account before his/her withdrawal or the liquidation of the partnership Nonrefundable
What makes a foreign limited liability company foreign?
An LLC is considered "foreign" by any State other than that in which it was formed. A foreign LLC must be registered with a State before it can bring enforcement actions in that State's courts; however, a foreign LLC can defend itself in that State's courts without registration.
What is the degree of control when it comes to franchise contracts?
As a general rule, the validity of a provision permitting the franchisor to establish and enforce certain quality standards is unquestioned. The franchisor has a legitimate interest in maintaining the quality of the product or service to protect its name and reputation
James Ferguson operated "Jim's 11-E Auto Sales" as a sole proprietorship and obtained insurance from Consumers Insurance Company. The policy was issued to "Jim Ferguson, Jim's 11-E Auto Sales." Later, Ferguson bought a motorcycle in his own name, intending to repair and sell it through his dealership. One day when he was riding the motorcycle, he was struck by a car and seriously injured. When Ferguson sued Consumers Insurance, the insurer argued that because Ferguson bought the motorcycle in his own name and was riding it at the time of the accident, it was his personal vehicle and was not covered under the dealership's policy. The court, however, held that the policy covered Ferguson's injuries. Why?
Because the business is operated as a sole proprietorship, Jim Ferguson and 'Jim's 11-E Auto Sales' are one and the same
What is unincorporated cooperatives?
Cooperatives that are not incorporated are often treated like partnerships. The members have joint liability for the cooperative's acts
How is a corporation treated like a citizen?
Corporations are citizens of the state(s) where they are incorporated and they have their principal place of business located for diversity jurisdiction purposes
How are personal assets at risk for sole proprietorships?
Creditors can pursue the owner's personal assets to satisfy any business debts. Although sole proprietors may obtain insurance to protect the business, liability can easily exceed policy limits.
What is the right to participate in management?
Each partner, unless otherwise agreed, has equal rights in the management and conduct of the partnership business. Majority vote governs the actions and decisions of the partnership with respect to matters in the ordinary course of business. However, the partnership may provide for unequal voting rights in the partnership agreement.- Sr and Jr
True or False: All partnerships have to have equal shares of profit in the company
False Senior Partners vs. Junior Partners
What state does not have a state law regarding franchisee protection?
Florida
When can a member of a LLC be held personally liable?
Florida Rule: In Florida, to "pierce" the veil of an LLC, it must be shown that the LLC was organized or used to mislead creditors or to perpetrate a fraud upon them. Rosy Blue v. Chad Davis & Davis & Associates, LLC
What is seller marketing cooperative?
Formed to control the market and thereby enable members to sell their goods at higher prices
What is consumer purchasing cooperative?
Formed to obtain lower prices through quantity discounts
What is the good faith and fair dealing when it comes to termination of franchise?
Generally, both statutory law and case law emphasize the importance of good faith and fair dealing in terminating a franchise relationship
What is incorporated cooperatives?
Generally, incorporated cooperatives will distribute dividends, or profits, to the owners on the basis of their transactions with the cooperative rather than on the basis of capital they contributed. Members of incorporated cooperatives have limited liability
What is actual data when it comes to FTC franchise rules?
If a franchisor makes sales or earnings projections based on actual data for a specific franchise location, the franchisor must disclose the number and percentage of its existing franchises that have achieved this result
What are projected earnings figures when it comes to FTC franchise rules?
If a franchisor provides project earnings figures, the franchisor must indicate whether the figures are based on actual data or hypothetical examples
What is a syndicate?
In a syndicate, or investment group, several individuals or firms join together to finance a particular project, such as the construction of a shopping center or the purchase of a professional basketball franchise. The form of such entities varies considerably. A syndicate may be organized as a corporation or as a general or limited partnership
What is joint property ownership?
Joint ownership of property does not in and of itself create a partnership. The parties intentions are key.
Duties among partners: "Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior." Who said this?
Judge Benjamin Cardozo in Meinhard v. Salmon ****Fiduciary loyalty is above honesty****
What is the main disadvantage of an LLC?
Lack of Uniformity Among Laws: The main disadvantage of the LLC is that state LLC statutes are not uniform. Therefore, businesses that operate in more than one state may not receive consistent treatment in these states
What if an accountant is a partner in an accounting firm and they are arrested for a DUI. Can they be kicked out of the firm?
Not an easy answer...thanks Chad
What does centralized management mean when it comes to corporations?
Shareholders of a corporation elect the board of directors to manage its business affairs; the board appoints officers to run the day-to-day operations of the business
What are the flexibility advantages of sole proprietorships?
Sole proprietors are free to make any decision he or she wishes concerning the business - such as whom to hire, when to take a vacation, and what kind of business to pursue
What are the profit advantages of sole proprietorships?
Sole proprietors own the entire business and thus receive all of the profits. In addition, generally no documents need to be filed with the government to start a sole proprietorship
What is good cause for termination?
Some state laws may prohibit termination without "good cause" or require that certain procedures be followed in terminating a franchise
What are the benefits in a lawsuit of sole proprietorships?
Sometimes, a sole proprietor can even benefit in a lawsuit from the fact that the business is indistinguishable from the owner (car accident and dealership)
What is the business organization when it comes to franchise contracts?
The franchisor may require that the business use a particular organizational form and capital structure. The franchise agreement may also set out standards such as sales quotas and record keeping requirements aka you need to earn a certain amount of money
What is a written disclosure when it comes to FTC franchise rules?
The franchisor must make numerous disclosures, such as the range of goods and services included and the value and estimated profitability of the franchise
What are antecedent debts when it comes to partnership liability?
The liability of a partner for antecedent debts of the partnership is limited to his/her capital contribution The partner doesn't have liability for debts before they became a partner
What are subsequent debts when it comes to partnership liability?
The liability of a partner for subsequent debts of the partnership is unlimited The partner does have liability for debts after they became a partner
What is a sole proprietorship?
The owner is the business - this includes anyone who does business without creating a separate business organization ex: annies and ebay
What is the unlimited liability disadvantages of sole proprietorships?
The sole proprietor has unlimited liability, or legal responsibility, for all obligations that arise in doing business. Any lawsuit against the business or its employees can lead to unlimited personal liability for the owner of a sole proprietorship
What is the lack of continuity disadvantages of sole proprietorships?
The sole proprietorship also has the disadvantage of lacking continuity after the death of the proprietor. When the owner dies, so does the business - it is automatically dissolved
Kate and Erin continually buy and sell real estate together over a period of 10 years and they "trade" in real estate Is this a partnership?
There is a partnership IRRESPECTIVE of whether they call it that or not because there is a profit.
Kate and Erin have a joint bank account, joint ownership in shares of the stock of a corporation, and purchased real estate together as joint tenants. They share the dividend paid on the stock, the interest on the bank account, and the net proceeds from the sale or lease of the real estate. Is this a partnership?
They are not partners since they are not carrying on a business
What is a reasonable basis for any representations when it comes to FTC franchise rules?
To prevent deception, all representations made to a prospective franchisee must have a reasonable basis at the time they are made.
True or False: A partner may voluntarily transfer, in whole or in part, his/her transferable interest in the partnership.
True
True or False: If a sole proprietor is sued, the plantiff can go after everything, the business and home
True
True or False: If no set time for termination is specified, then a reasonable time, with notice, is implied
True
True or False: Passive co-ownership of property are excluded as a partenship
True
True or False: The courts have tended to regard LLCs as citizens of every state in which their members are citizens
True
True or False: There has to be a notice of termination before there is a termination of franchise.
True
True or False: Foreign investors are allowed to become LLC members
True Organizing as an LLC can enable a business to attract investors from other countries
What is the location of the franchise when it comes to franchise contracts?
Typically, the franchisor determines the territory to be served. Some franchise contracts give the franchisee exclusive rights, or "territorial rights," to a certain geographic area. Other franchise contracts, while defining the territory allotted to a particular franchise, either specifically state that the franchise is nonexclusive or are silent on the issue of territorial rights
What is the right to compensation?
Unless otherwise agreed, NO PARTNER is entitled to payment for services performed for the partnership Even a partner who works disproportionately harder than the others to conduct the business is entitled to no salary but only to his/her share of the profits
What is a joint venture?
Unless otherwise agreed, joint venturers share profits and losses equally and have an equal voice in controlling the project. For instance, when several contractors combine their resources to build and sell houses in a single development, their relationship is a joint venture. A joint venture resembles a partnership and is taxed like a partnership. For this reason, most courts apply the same principles to joint ventures as they apply to partnerships.
What is "for cause" when it comes to termination of franchise?
Usually, the franchise agreement specifies that termination must be "for cause" and then defines the grounds for termination. Cause might include, for instance, the death or disability of the franchisee, insolvency of the franchisee, breach of the franchise agreement, or failure to meet specified sales quotas
What is the means of control when it comes to franchise contracts?
When the franchise prepares a product, such as food, or provides a service, such as motel accommodations, the contract often states that the franchisor will establish certain standards for the facility. Typically, the contract will state that the franchisor is permitted to make periodic inspections to ensure that the standards are being maintained
Can a shareholder sue a corporation because the corporation is making bad decisions?
Yes
A partner is in the manufacturing industry. He retains a secret discount on purchases of petroleum he obtains through acquisition of a bulk plant. Is the fiduciary duty of loyalty violated here?
Yes He retained profit secretly and didn't include his partner. Can sue the other partner for violating loyalty
Harry, Harriet, and Horance operate the Triple H used car lot as a general partnership. Pursuant to their agreement, each drives a Triple H vehicle to and from work, makes various business trips about the city either from home or the lot, and keeps a "for sale" sign displayed in the vehicle's windshield. Each car is for sale at all times of the day and night and at any location. One afternoon, Harriet was driving on a business trip when her car collided with one driven by Paine, who was seriously injured. Harriet's conduct was found to be criminally negligent. In a tort action by Paine against Harry, Harriet, and Horance, both as individuals and as the Triple H partnership, who is liable? a. All defendants because Harriet was acting within the ordinary course of the partnership business b. Only Harriet because her tort was not authorized by the other partners c. Only Harriet because a crime cannot be imputed to the partnership d. Only Harriet and Triple H
a. All defendants because Harriet was acting within the ordinary course of the partnership business
Skip & Trip decide to start a boutique selling preppy clothing. They sign a partnership agreement providing that Skip will contribute $6,000 toward the necessary $10,000 in start-up capital, and Trip will contribute $4,000. If the agreement is silent as to management and profits, Skip should receive: a. 60% of the profits and share management equally with Trip b. 60% of the profits and control 60% of the management functions c. 50% of the profits and share management equally with Trip d. 50% of the profits and control 60% of the management functions
c. 50% of the profits and share management equally with Trip
Under the Uniform Limited Liability Company Act, the members of an LLC may determine in their operating agreement how their business will be conducted. In the absence of a provision in the operating agreement, the act provides that: a. Failure of the LLC to follow the usual formalities in the exercise of its powers results in personal liability for the members b. The managers have personal liability for obligations of the LLC c. A majority of the managers may exclusively decide most business matters d. In a member-managed LLC, voting rights with respect to most business matters are in proportion to capital contributions
c. A majority of the managers may exclusively decide most business matters
B approached L and proposed they form a partnership to exploit a profitable idea of B's. L declined, citing the risk of unlimited liability. B then proposed that L lend B $50,000 and that B go into the business as a sole proprietor. L would receive half the profits and the right to veto any of B's decisions. The debt would have a long-term maturity date to facilitate operation of the business during its development stage. If L accepts the above proposition, the likely result is that: a. A debtor-creditor relationship exists between B and L b. B and L are not partners as to each other, or third parties c. B and L have formed a partnership even if they did not intend to d. If L promises orally to become a partner of B and to transfer real property to the business, the statute of frauds would prohibit enforcement of the promise
c. B and L have formed a partnership even if they did not intend to
Partners have a fiduciary relationship with each other. Accordingly, a partner: a. May engage in a business that competes with the partnership if it is operated with his/her own resources b. May take advantage of a business opportunity within the scope of the partnership enterprise if the partnership agreement will terminate before the benefit will be received c. Must exercise a degree of care and skill as a professional d. May not earn a secret profit in dealings with the partnership or partners
d. May not earn a secret profit in dealings with the partnership or partners