Chapter 27 : Choice of Business Entity and Sole Proprietorships

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trade name, fictitious name

If Joan Gates wishes to "do business as" Gates Consulting, she would create a(n)__________ or DBA with a local or state office.

owner, principal, sole proprietor

In a sole proprietorship, all debts and liabilities of the business are also personal debts and liabilities of the ___________.

disclosures

The Federal Trade Commission regulations focus on mandatory ______ regarding the financial condition of the franchise, success rates, and other important information used by potential franchisees faced with making the decision to invest in the franchise.

Federal Trade Commission (FTC)

The ________ is the federal regulatory authority that oversees the regulation of franchisors.

tax, risk and operational objectives

The best choice of business entity is driven primarily by the following factors: _____________.

line of credit

The biggest advantage of a(n)___________, which is typically secured by collateral, is that the borrower only pays interest on the funds actually drawn instead of the full amount of a loan.

sole proprietorship

The chief drawback to the _______ as a form of entity is the owner's complete lack of protection for unpaid debts and liabilities of the business.

sole proprietorship

The chief drawback to the ___________ as a form of entity is the owner's complete lack of protection for unpaid debts and liabilities of the business.

Sole proprietorship

The easiest single-person ownership entity to form and maintain is a(n)___________.

individual tax return, individual tax rate

The principal of a sole proprietorship reports business income and expenses on her own _______and pays taxes on business income (or deducts business losses) based on the applicable________.

sole proprietorship

The simplicity of the ________makes this entity a top choice for start-up businesses with relatively low annual revenues and expenses.

self funded

Businesses that are __________and have a relatively low potential for liability usually do not require the protection and flexibility offered by more complex forms of business entities.

line of credit

A close cousin to a commercial loan is a commercial _____which allows a proprietor to draw against a predetermined credit limit.

territory rights, franchise fees, term of the agreement

A franchise agreement generally covers the following:

territory

A franchise agreement that covers ________ rights usually provides the franchisee with an exclusive geographic area.

franchisor, franchisee

A franchise involves the two parties: the ________ who is a business entity that has a proven track record of success, who sells to a(n)_________the right to operate the business and use the business's trade secrets, trademarks, and products.

cannot pass

A proprietors ownership interest in a sole proprietorship ________ to her heirs through a gift or an estate.

corporate

A sole proprietorship is generally not subject to _________income taxation, and no tax return is filed on behalf of the business.

an express act of the principals, operation of law

A sole proprietorship is terminated either by ________or by _________in the case of the death or personal bankruptcy of the proprietor.

franchise

A(n) ____ should be thought of as a method of conducting business that centers on a contractual relationship rather than as a business entity.

franchise

A(n) ______ distributes its products to a broader market without the overhead costs of retail space, equipment, and employees.

franchise

A(n) ________ should be though of as a method of conducting business that enters on a contractual relationship rather than as a business entity.

commercial

A(n)_________loan is usually collateralized by an asset of equivalent value typically consisting of the proprietor's personal assets to get a lower interest rate.

principals

Each form of business entity has its attendant advantages, drawbacks, and legal consequences for the owners, know as _____________, of the business.

franchise

Federal statues define a(n) _____________ as an arrangement of a continuing commercial relationship for the right to operate a business with a particular trade name or sell the seller's branded goods.

fictitious name

In some states, if Joan Gates does business as "Gates Consulting" she would file for a certificate of ______with a local or state office.

principal

In the context of business entities, ___________ is a generic word for individuals who are entitled to the profits of a business based on their percentage of ownership.

sole proprietorships, employees

Most ________are relatively small in terms of assets and revenues, and are not restricted in terms of the number of _______and can operate in as many locations as the principal desires.

six

Most states recognize at least ___________ forms of business entities.

commercial

Sole proprietors may raise money through _______loans which is a more formal process from a lender such as a bank.

Financing the business through debt, Financing using the proprietor's personal resources.

Sole proprietorships are limited in their options for raising money. These options include which of the following?

taxation, liability, ease of formation

When choosing a business entity, principals should consider the following factors: _____________

personal liability

When choosing a business entity, principles should carefully consider the extent of ____________for debts and contracts.

Sole proprietorships

________ have no oversight committees (such as a board of directors), do not require any agreements among principles, and may be converted to another form of entity.

Private

______________ loans come from family members and friends and are paid back according to their individual agreement.

Private

_______loans are typically through individuals who negotiate such items as interest rate directly with the proprietor.


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