Chap17-ppt - Chap 17 PDF

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Chap 17...

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Small Business Organizations Chapter 17 Sole Proprietorship •Owned by a single person or family. •Owner reports business income and expenses on personal income tax return. •Owner is legally responsible for all debts and obligations without limit. General Partnership •Agreement by two or more parties. •Purpose is for profit. •Not necessarily in writing. •Partnership information tax return - taxes assumed by partners directly. •Partners have unlimited liability. Uniform Partnership Act In the absence of a partnership agreement the UPA, as adopted by most states, governs the partnership Definition of a Partnership – UPA defines as “association of two or more persons to carry on a business for profit.” – Partnership presumed under UPA if: • Sharing of profits or losses. • Joint ownership of the business. • Equal right to be involved in the management of the business. Entity versus Aggregate. Today, a majority of states recognize the partnership as a separate legal entity for the following purposes: (1) To sue and be sued (2) To have judgments collected against it’s assets, and individual partners’ assets. (3) To own and convey partnership property. Tax Treatment. – Under federal (and most state) tax laws, a partnership is treated as a “pass through” entity, with profits, losses, and taxes attributed on a pro-rata basis to the partners. Partnership Formation and Operation – Partnership Agreement. – Can be written or oral, unless the Statute of Frauds requires a written agreement. – Duration of the Partnership. – Partnership for a Term. – Partnership at Will. Rights of Partners – In the absence of a partnership agreement (oral or written) state statutes govern the partner rights. – Management: equal, each one vote, majority wins; need unanimous consent for some actions. – Interest in the Partnership: equal profits, losses shared as profits shared. – Compensation: none. – Inspection of the Books: always and also by rep. of deceased partner. – Accounting: when fraud, embezzlement, wrongful exclusion, etc, it is just and reasonable. – Property Rights. – Property acquired by the partnership remains partnership property. – An individual partner has no right to sell, mortgage, or transfer partnership property. – Each partner can: – Use or possess property on behalf of the partnership. – Assign her right to her share of the profits to another to satisfy individual debt. Duties and Liabilities of Partners – Liability of Partners. – If Partner is sued for Partnership debt, Partner has right to insist that other partners be sued with him or her. – Joint Liability: third party must sue ALL partners as a group, but each partner can be held liable for the full amount.

Dissociation of a Partner Dissociation occurs when one partner ceases to be associated in the partnership business. – Allows partner to have interest purchased by the partnership. – Terminates voting interest in the partnership. • Events That Cause Dissociation: – Notice of Withdrawal. – Triggering Event. – Unanimous Vote. – Court or Arbitrator Order. – Partner’s bankruptcy, assignment of interest, incapacity, or death. Partnership Termination The termination of a partnership occurs in two stages: – Dissolution (is the legal “death” of the partnership), and – Winding up and Distribution of Assets (collecting and distributing partnership assets). • Dissolution: by agreement, operation of law or judicial decree. – Partners can Agree to Dissolve. – By Operation of Law: ● Death of a partner. • Bankruptcy of a partner. • Bankruptcy of partnership. • Illegality. – By Judicial Decree: ● Insanity • Incapacity. • Business Impracticality. • Improper Conduct. • Other Circumstances (personal dissension). • Winding Up and Distribution of Assets. – After dissolution, partnership continues to wind up the partnership affairs, pay off all claims and distribute remaining assets. – Creditors’ Claims: • Payment of debts, including those owed to partner and non-partner creditors. • Return of capital contributions and distribution of profits to partners. • If liabilities are greater than assets partners bear losses in proportion in which they shared profits, unless agreed otherwise. Franchises Owner of trademark, trade name, copyright, license or trade secret licenses its use to another by an agreement in exchange for a fee. •Franchisor - grantor of franchise •Franchisee - recipient who provides capital and develops business. Franchisor can control: –location of business –source of materials and supplies –type of business organization of franchisee –nature of advertising Payments to Franchisor: –Initial Deposit or Purchase –Percentage of Gross Revenues –Required Purchases of Materials, Supplies and Advertising Price Controls: –Franchisor may suggest prices at which products will be sold. –Franchisor may not mandate prices (violation of antitrust laws). Franchises •Termination generally only “for cause” •Reasonable notice required •Examples include death of franchisee, bankruptcy, default under franchise agreement...