Chapter 27 Choice of Business Entity and Sole Proprietorships

These flashcards cover key vocabulary related to business entities and sole proprietorships from Chapter 27 of the lecture notes.

Business Entity

A legal structure that determines how a business is organized, including aspects of formation, liability, taxation, and management.

Sole Proprietorship

A one-person entity where the owner is personally liable for all debts and liabilities of the business.

Principal

Individuals entitled to the profits of a business based on their percentage of ownership.

Liability

The state of being responsible for something, often used in business to refer to the debts and obligations of the entity.

Capitalization

The process of funding a business through various means such as personal resources, loans, or selling ownership rights.

Taxation of Income

The methods by which tax authorities treat business income or losses, determining whether the business itself or the owners pay taxes.

Profit and Loss Sharing

An agreement among business owners detailing how profits and losses will be distributed among them.

DBA (Doing Business As)

A registration that allows a sole proprietor to operate under a fictitious business name.

Franchise

A method of conducting business where a franchisee operates a business under the brand and guidance of a franchisor.

Termination of Sole Proprietorship

The process by which a sole proprietorship is dissolved, either voluntarily or due to the owner's death or bankruptcy.

Liability of Proprietor

The risk faced by a sole proprietor as all business debts and liabilities are also personally owed by the owner.

Commercial Loan

A loan from a financial institution to a business, typically secured by collateral.

Unsecured Credit

A credit account that does not require collateral, often associated with higher interest rates.

Franchise Agreement

A legal contract that outlines the relationship and obligations between a franchisor and a franchisee.

FTC (Federal Trade Commission)

The federal authority that regulates franchise agreements and ensures disclosure of information to potential franchisees.