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UT Knoxville BULW 301 - Chapters 17&18 Outline

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CHAPTER 17 Sole Proprietorships Franchises Partnerships I Sole Proprietorships a Owner Business b Advantages i Owner receives all profits ii Uncomplicated to form iii Increased flexibility c Disadvantages i Owner incurs all losses liabilities ii Creditors can pursue owner s personal assets iii Business dissolves when owner dies iv Owner is personally liable for legal obligations of the business d Business profits are reported on proprietor s personal income tax return II Franchises a Arrangement in which owner of a trademark trade name or copyright franchisor licenses another franchisee to use the intellectual property b Franchisee is i Legally independent ii Economically dependent c Types of Franchises i Distributorship manufacturer licenses a dealer to sell its product ii Chain Style business a franchise operates under a franchisor s trade name generally required to follow standardized or prescribed methods of operation iii Manufacturing Arrangement franchisor transmits to the franchisee the essential ingredients or formula to make a particular product d Franchise relationships are contractual so contract law often governs e Most laws regulations state or federal that are franchise specific are designed to protect the franchisee f Federal Trade Commission s 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 includes i Written disclosures concerning range of goods and services included and the value and estimated profitability of franchise ii Reasonable basis for any representations iii Projected earnings figures iv Actual data on which sales or earnings projections are based v Explanation of terms g Franchise relationships are contractual terms often address i Payment for franchise license ii Premises location iii Organizational form capital structure iv Quality control v Pricing arrangements h Franchise Termination parties set out parameters in franchise contract i For Cause ii Notice of termination must be given iii Opportunity to cure iv Franchisor must act in good faith See Holiday Inn v HAI III Partnerships a Relationship express or implied between two or more persons who join to carry on trade or business i Partners are co owners ii Partners share profits AND losses iii Partners have equal right to be involved in management b Partners are agents of one another they act on behalf and instead of one another and have a duty of care and loyalty to one another c Uniform Partnership Act body of law governing the operation of partnerships in the absence of an express agreement between the partners i Defines partnership as an association of two or more person to carry on as co owners a business for profit ii All partners must intend to be partners iii A partner joins only with the consent of other partner s d Legal treatment of partnership i Typically treated as an entity rather than as a collection of individuals EXCEPT ii Treated as aggregate of individuals for tax purposes pass through entity e Partnership Formation agreements to form can be oral written or implied by conduct f Articles of Partnership the actual partnership agreement can include most any terms partners choose and generally includes i Basic structure ii Capital contributions iii Sharing of profits and losses iv Management and control v Accounting and partnership records vi Dissociation and dissolution vii Arbitration g Partnership duration i Partnership for a term continues until a designated date or the completion of a particular project premature withdrawal from a partnership can be the basis for a lawsuit by the remaining partners ii Partnership at will no fixed duration is specified and partnership can dissolve at any time h Rights of partners unless partners agree otherwise i All partners have equal rights in management ii All partners have one vote in management matters iii Majority rule governs EXCEPT in the following situations where unanimous consent is required 1 Alter essential nature of the firm s business 2 Change capital structure of partnership 3 Amend terms of partnership agreement 4 Add a new partner 5 Engage in new business 6 Issues involving creditors 7 Dispose of partnership s goodwill 8 Submit partnership claims to arbitration 9 Do something making further conduct of the partnership impossible iv Each partner is entitled to the proportion of the business profits and losses specified in the agreement if not specified profits and losses are shared equally v Compensation from partnership comes from distribution of profits according to partner s share in the business vi Books and records must be accessible to all partners vii Can ask for an accounting of assets to determine the value of each partner s share i Duties and Liabilities each partner is an agent of every other partner and the partnership itself i Fiduciary duties the duty of care and the duty of loyalty may not self deal misuse partnership property disclose trade secrets or usurp partnership business opportunity ii Partner can subject the partnership to tort liability if acting within the scope and bound of his her authority as a partner iii Partners are personally liable for partnership debts 1 Joint Liability each partner can be held liable for the full amount of damages even if partnership is sued as a group 2 Several Liability only liable for that partner s proportionate damages 3 Joint and Several Liability it is up to the defendants to sort out their respective portions of liability 4 Indemnification a partner committing a tort can be required to pay back the partnership for any damages the partnership pays as a result of the partner s tortious acts j Dissociation when a partner leaves the partnership i The leaving partner s interest usually bought by partnership at the buyout price amount that would have been distributed if partnership had been wound up on date of dissociation offset against any amounts owed to partnership ii A partner can dissociate by 1 Partner s voluntary withdrawal 2 Occurrence of some event specified in partnership agreement 3 Unanimous vote of other partners under certain circumstances 4 Court order 5 Partner s declaration of bankruptcy iii Dissociation can breach partnership agreement allowing other partners to sue for damages iv Liability of dissociating partner to third parties continues for two years after dissociation k Partnership termination Dissolution winding up


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