Business Structures Quiz: Sole Proprietorship & Franchise

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Questions and Answers

Who are the principals of a business?

The owners of a business entity.

What is a sole proprietorship?

One-person business entity with minimal filing requirements.

What certificate must a sole proprietor file to use a trade name?

DBA, 'doing business as'.

What is the rule regarding personal liability for a sole proprietorship?

All debts and liabilities of the business are also personal debts and liabilities for the principal. Signup and view all the answers

What are the types of debt through which a sole proprietorship may be capitalized?

Unsecured Credit Signup and view all the answers

What is collateral?

Assets the borrower has pledged to secure a loan. Signup and view all the answers

What are the taxation requirements for a sole proprietorship?

No corporate income tax; business income reported on the proprietor's personal tax return. Signup and view all the answers

In general, what are the two ways by which a sole proprietorship is terminated?

Express act of the principal Signup and view all the answers

What is the rule regarding the passage of a sole proprietor's ownership interest?

The proprietor's ownership interest cannot pass to their heirs through gift or estate. Signup and view all the answers

What is a franchise?

A contractual relationship for the right to operate a business under a franchisor's trade name. Signup and view all the answers

Which federal regulatory authority oversees the regulation of franchisors?

The Federal Trade Commission (FTC). Signup and view all the answers

How did the Court of Appeals rule in Biller v. Snug Harbor Jazz Bistro?

Affirmed decision in favor of Snug Harbor, ruling that it was different from the sole proprietorship. Signup and view all the answers

What is a general partnership?

An association of two or more people who are co-owners and co-managers of the business. Signup and view all the answers

A formal document is necessary to form a general partnership.

False Signup and view all the answers

What is the difference between a term partnership and a partnership at will?

Term partnership has a specific dissolution date; partnership at will continues indefinitely. Signup and view all the answers

What is the Revised Uniform Partnership Act (RUPA)?

A model partnership drafted by the National Conference of Commissioners on Uniform State Laws. Signup and view all the answers

What are the taxation requirements for a general partnership?

It is a pass-through entity, pays no corporate tax, reflected on the owner's taxes. Signup and view all the answers

What is a limited partnership?

Exists by state statute recognizing managing partners while others contribute capital. Signup and view all the answers

What is the general rule regarding a limited partner's liability?

Limited partners are liable only to the extent of their contribution. Signup and view all the answers

What is a family limited partnership?

A limited partnership used for estate planning. Signup and view all the answers

What document must be filed to convert a general partnership into a limited liability partnership?

Statement of Qualification. Signup and view all the answers

What is windup?

The process of paying the debts and liquidating assets after dissolution. Signup and view all the answers

How did the New York appellate court rule in Meinhard v. Salmon?

Salmon breached duty of loyalty; his actions required Sal to be informed. Signup and view all the answers

Study Notes

Sole Proprietorship

A single person business entity with minimal filing requirements.
A DBA certificate must be filed with local or state authorities when using a trade name.
The owner is personally liable for all business debts and liabilities.
Capitalization sources may include private loans, commercial loans, lines of credit, and unsecured credit.
Collateral is pledged to secure loans.
No corporate income tax is required, business income is reported on the owner's personal tax return.
Termination occurs through the owner's express action or through operation of law.
Ownership interest cannot be transferred to heirs via gift or estate.

Franchise

A contractual relationship for the right to operate a business using the franchisor's trademarks or sell branded goods.
The Federal Trade Commission (FTC) regulates franchisors.
The U.S. Court of Appeals for the Fourth Circuit affirmed the ruling in Biller v. Snug Harbor Jazz Bistro of Louisiana, LLC (2012), upholding the termination of a sole proprietorship upon the owner's death, separating the entity from any continuing business.

General Partnership

An association of two or more people who are co-owners and co-managers of the business and share in the profits.
No formal filing is required to establish a general partnership.
Term partnerships have a set duration, while partnerships at will continue indefinitely.
Partnerships can be formed through express agreement (oral or written) or implied conduct.
The Revised Uniform Partnership Act (RUPA) is a model partnership law.
General partnerships are pass-through entities, with no corporate income tax.
Profits and losses are shared as agreed upon, or equally if no agreement is reached.

Limited Partnership

A state-sanctioned structure with limited partners who contribute capital and general partners who manage the business.
Limited partners are generally not liable for the partnership's debts and liabilities.
Family limited partnerships are used for estate planning by wealthy families.
Converting a general partnership to a limited liability partnership (LLP) requires filing a Statement of Qualification with the appropriate official.
Dissolution involves the windup process, including paying debts and distributing remaining assets.

Meinhard v. Salmon (1928)

In this case, the New York appellate court, in an opinion by Judge Cardozo, ruled that Salmon, a partner in a hotel lease agreement, violated his duty of loyalty by entering a new lease agreement for the same property without informing Meinhard, his partner. This case demonstrates the importance of fiduciary duties in partnership relationships.

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Description

Test your knowledge on the key aspects of sole proprietorships and franchises. This quiz covers the legal implications, financial responsibilities, and operational details of these business structures. Perfect for students and entrepreneurs looking to deepen their understanding of business entities.