CH: 35 – Forms of Business Organization (Key Terms)

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Sole Proprietorship
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Going into business on your own.
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Sole Proprietor
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In sole control of the management and the profits.
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Partnership
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A voluntary association between two or more persons who co-own a business for profit.
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Advantages of Partnership
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1. Formation is easy. The partners, each considered an agent of the partnership, are generally not required to create an official or even a written agreement to establish it. 2. In most cases the partnership is not considered a separate legal entity, income from the business is taxed as individual income for each partner.
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General Partnership
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The partners divide the profits (usually equally) and the management responsibilities and share unlimited personal liabilities for the firm’s debts.
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Limited Partnership (LP)
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An agreement between at least one general partner and at least on limited partner.
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Limited Liability Partnership (LLP)
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All the partners assume liability for one partner’s professional malpractice, but only to the extent of the partnership’s assets; the other partners’ personal assets cannot be taken.
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Legal Principle (for LLP)
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Every partner in a limited liability partnership has liability to he partnership’s assets.
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Corporation
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A legal entity formed by selling shares of stock to investors, who then become SHAREHOLDERS and the owners of the company.
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S Corporation
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Is a corporation under federal tax law but is taxed like a partnership as long as it follows certain regulations.
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Legal Principle (for a corporation)
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A corporation is a separate legal entity and can be sued.
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Limited Liability Company (LLC)
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An unincorporated form of business organization that many people see as combining the most advantageous features of partnerships and corporations. It combines the tax advantages and management flexibility of a partnership with the limited liability of a corporation.
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Legal Principle (for LLC)
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As a general rule, an LLC is formed by filing articles of organization in the state in which members want to establish their LLC. Precise requirements for formation vary by state. Moreover, an LLC needs to register in every additional state in which it will do business.
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Cooperative
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An organization formed by individuals who usually pool their resources to gain an advantage in the market.
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Joint Stock Company
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A partnership agreement in which company members hold transferable shares while all the goods of the company are held in the names of the partners.
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Business Trust
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A business organization governed by a group of TRUSTEES, who operate the trust for the BENEFICIARIES.
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Syndicate
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An investment group that comes together for the explicit purpose of financing a specific large project.
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Joint Venture
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Is a relationship between two or more persons or corporations created for a specific business undertaking.
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Franchise
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This form of business organization is a business that exists because of an arrangement between the FRANCHISOR, an owner of a trade name or trademark, and the FRANCHISEE, a person who sells goods and services under the trade name or trademark.
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3 categories of Franchises
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-Chain-style business operation -Distributorships -Manufacturing Arrangement
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Chain-Style Business Operation
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The franchise operates under the franchisor’s business name and is required to follow the franchisor’s business name and is required to follow the franchisor’s standards and methods of business operation.
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Distributorships
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The franchisor manufactures a product and licenses a dealer to sell it in an exclusive territory. ex: car dealership
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Manufacturing Arrangement
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The franchisor provides the franchisee with the formula or necessary ingredient to manufacture a product.
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Franchise Agreement
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Regarding payment to the franchisor, location of the franchise, restrictions the franchisee must follow, and method of termination of the franchise.
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Legal Principle (Franchise)
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When a franchisee does not uphold the franchise agreement, the franchisor can terminate the relationship with sufficient notice.

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