304- Law of Sole Proprietorships and Partnerships

insubordination

not listening to your superior

15% discount si the max but accepting 20% as a sales manager but not the owner

what determines what type of business you have

•Set up costs

•Complexity in running (securities, reports)

•Ability to raise capital (financing from 3rd parties or debt)

•Liability

•Tax implications (individual level or corp level)

•Control (say your a shareholder, you have no impact)

•Participation in profits(dividends, reinvested)

implications of sole

•Unlimited liability of owner for losses of the business

•Profits are added to owner’s income for income tax purposes (higher tax brakcet if you are mkaing lots of money youreslef)

•High risk for owner

•Can employ employees

•Very limited ability to raise capital (only through debt)

key features of a sole

no seperate legal entity (cannot sue or be sued)

require licenses

has to register name

easy to operate and dissolve

raise capital through debt only NOT capital

partnerships

NOT a legal entitiy

each partner is liable for all debts

no partner can be an employee, but can have other employees

no partner can be a creditor

not taxed at seperate entity

can be set up without wirtten contract

formation of partnerships

• has to be a business for a profit, but doesnt have to make a profit

partnership needs to be distinguished from other relationships

profit sharing- if employees achieve certain things they get money for profits shared

co ownership of propoerty -ex- husband and wife with rental property, intention to sell house with a profit does not create a partnership

relationship between the partners

default rules apply if no agreement is made

owe fiduciary duty to each other

property is both even if its under one persons name , but propety not legally owned by the ps

liability to 3rd parties

All partners are liable for all debts of the PS incurred in the ordinary course of the PS business

No liability for acts outside the usual scope of the PS business or where 3^rd party knows that the person acting is not a partner or acts outside the scope of his/her authority

PS is liable for torts and other wrongful acts of its employees

partner retirment and holding out situation

Is the idea that it is evident to the external world that a persons name is still associated with business when they have retired and actually are not involved with the business anymore (name recognition).

get something that says you arent involved anymore

notify 3rd parties

dissolution of partnerships

•If set up for a fixed term, upon expiry of the term*

•If set up for a single undertaking, by termination of the undertaking*

•If set up for unlimited term, by notice of any partner*

•By the death of a partner*

•By the bankruptcy of a partner*

•In cases as defined in the PS agreement

•If activity of the PS becomes illegal (e.g., due to a change in laws)

•By court order (courts apply high standard to dissolve PS)

upon dissolution how does the assets get paid out amongst the partners

‘Liabilities to 3^rd parties are paid out first from assets of the PS

‘Then advances and capital of partners

‘If not enough assets to pay 3^rd parties, partners must contribute to cover shortfall in proportion to their entitlement to profits (unless otherwise regulated in the PS agreement)

limited PS vs LImited liability PS

Limited partnership: one person who manages the business and is personally liable for all debts, there is another partner as well but they are not liable for as much as the other partner

Limited liability: when there are one or more owners and they all are not personally liable for the companies debts (accountants open up a firm together)

example of a general partnership

Two friends get together to operate a landscaping business

example of a limited partnership

A sole proprietor needs capital and attracts a passive investor who becomes the partner. The sole proprietor becomes general partner, solely managing the business along with his other partner who is considered a limited partner.

joint ventures

A business arrangement where two or more parties come together to achive a specific goal, can be contract , a corp , or a partnership

joint ventures legal consequences

Profit sharing arrangement, liabilities, degree of control of each joint venturer can easily lead to conflict

If JV itself is a corporation or a partnership legal consequences are clear

If JV is based on contract, unclear what the legal consequences are beyond those addressed in the JV agreement

Issue: is there a fiduciary duty of JV parties toward each other? (some courts confirmed such a duty in certain limited circumstances)

licensing

owership of property and you pay a fee

copyrights, trademarks and patents

can be standalone or apart of a JV, franchise etc

it is a contract

francise

When a big company allows individuals or other companies to operate the business using their brand, products etc

pay a fee to franchisor to operate in a specific location

distributor

•Typically, distributors buy products and then resell them in their own name (i.e., agreement is between end user and distributor not end user and manufacturer)

•Distributor might perform additional services for manufacturer (example: warranty services)