Chapter 41Chapter 41TYPES OFTYPES OF

BUSINESS ORGANIZATIONSBUSINESS ORGANIZATIONS

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Forms of Business OrganizationsForms of Business Organizations

The three principal forms of business The three principal forms of business organizations are:organizations are: Sole Proprietorships, Sole Proprietorships, Partnerships, LLP’s and LLC’s and Partnerships, LLP’s and LLC’s and Corporations. Corporations.

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Forms of Business OrganizationsForms of Business Organizations

Newly created forms of business --the LLC and LLP -- Newly created forms of business --the LLC and LLP -- allow for tax treatment as a partnership with some allow for tax treatment as a partnership with some limited liability.limited liability.

The selection of the form of organization is determined The selection of the form of organization is determined by:by: Nature of the business, Nature of the business, Tax considerations, Tax considerations, Financial risk involved, Financial risk involved, Importance of limited liability, and Importance of limited liability, and The extent of management control desired.The extent of management control desired.

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In a In a sole proprietorshipsole proprietorship one person owns the business, one person owns the business, controls all decisions, receives all profits, and has controls all decisions, receives all profits, and has unlimited liability for all obligations. unlimited liability for all obligations.

A A partnershippartnership involves the pooling of capital resources involves the pooling of capital resources and talents of two or more persons whose goal is making and talents of two or more persons whose goal is making a profit; the partners are subject to unlimited personal a profit; the partners are subject to unlimited personal liability. liability.

A A corporationcorporation is an entity--an artificial being-- created is an entity--an artificial being-- created by a government grant; the corporation itself bears all by a government grant; the corporation itself bears all liability; shareholders elect a board of directors, who are liability; shareholders elect a board of directors, who are responsible for managing the business.responsible for managing the business.

DefinitionsDefinitions

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Specialized Forms Specialized Forms of Business Organizationsof Business Organizations

A A joint venturejoint venture exists when two or more persons exists when two or more persons combine their labor or property for a single business combine their labor or property for a single business undertaking and share profits and losses as agreed. undertaking and share profits and losses as agreed.

An An unincorporated associationunincorporated association is a combination of is a combination of two or more persons for the pursuit of a common two or more persons for the pursuit of a common purpose. purpose.

A A cooperative cooperative consists of two or more persons or consists of two or more persons or enterprises, such as farmers, who cooperate to enterprises, such as farmers, who cooperate to achieve a common objective, such as the distribution achieve a common objective, such as the distribution of farm products.of farm products.

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Franchise Business FormatFranchise Business Format

By a By a franchisefranchise, the owner of a trademark, trade , the owner of a trademark, trade name, or copyright licenses others to use the mark name, or copyright licenses others to use the mark or copyright in selling goods or services. or copyright in selling goods or services.

The Automobile Dealers’ Franchise Act and the The Automobile Dealers’ Franchise Act and the Petroleum Marketing Practices Act are federal Petroleum Marketing Practices Act are federal laws that provide covered franchisees with laws that provide covered franchisees with protection from bad-faith terminations. protection from bad-faith terminations.

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Liability of FranchisorsLiability of Franchisors

A franchisor is not liable to third persons dealing A franchisor is not liable to third persons dealing with its franchisees. with its franchisees.

Liability of the franchisor may, however, be Liability of the franchisor may, however, be imposed on the ground of the imposed on the ground of the apparent authorityapparent authority of of the franchisee or the latter’s control by the the franchisee or the latter’s control by the franchisor. franchisor.

Liability of the franchisor may also arise in cases of Liability of the franchisor may also arise in cases of product liabilityproduct liability. .

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FranchisorsFranchisors

Special Protections under Federal Laws.Special Protections under Federal Laws. Automobile Dealer’s Day in Court Act.Automobile Dealer’s Day in Court Act. Petroleum Marketing Practices Act.Petroleum Marketing Practices Act.

Disclosure.Disclosure.Vicarious Liability Claims Against Franchisors.Vicarious Liability Claims Against Franchisors.