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BMAL 590 Legal Environment of Business Exam with correct Answers
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BMAL 590 Legal Environment of Business Exam with correct Answers
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BMAL 590 Legal Environment ofBusiness Exam with correct Answers
Business organizations: - Answers -Sole trader
Partnership
Company
Franchise
Sole trader - Answers -Ownership and control of business: by one owner
Partnership - Answers -Ownership: by partners
Control of business: by partners although senior partners may have more decision
making power
Company - Answers -Ownership: shareholders
Control of business: by directors and paid managers. Some will have more control.
Franchise - Answers -Ownership: franchisee holds license but only for a given period
Control of business: franchisee but must operate in framework set out by franchisor.
Sole Proprietorship - Answers -This is the simplest and also the most prevalent form of
business in the United States.
As the name implies, in a sole proprietorship, one individual owns all the assets and is
responsible for all liabilities - debt, contracts, and tort liabilities.
The proprietor is the business. The business is not different from the proprietor.
If the business has to be conducted in a name other than that of the proprietor, the
name must be registered with the appropriate state authority.
A sole proprietorship ceases to exist when the proprietor decides to wind up the
business, or on the death of the proprietor, whichever is earlier.
Advantages of Sole Proprietorship - Answers -Easy and simple to set up.
One person is in control.
Only one level of income tax - proprietor reports income and loss on personal returns.
Proprietor receives all the profits and other benefits.
limitations of sole proprietorship - Answers -Proprietor is personally liable for business
obligations. The risk is high.
, Difficult to raise capital. Can borrow from relatives and friends and from institutions as
an individual.
General Proprietorship - Answers -Two or more persons agree to invest their money,
time, and skills in a business, and to share the profits/losses. Essentially, a GP is sole
proprietorship with multiple proprietors. Thus, the partners are personally liable for all
partnership obligations.
The partnership agreement may be explicit or implied, but sharing of profit/loss must be
real. In other words, partners cannot merely receive wages or salaries.
Unless specified otherwise, each partner has some authority and a corresponding
responsibility.
A partnership exists as an entity by itself and separate from its partners. It can acquire
property.
Advantages of General Proprietorship - Answers -Allows for a range of possibilities in
ownership and sharing.
One partner may invest money, another may provide space, and a third may provide
expertise. Yet, they may be equal partners.
Subject to only one level of tax - that of the individuals who are partners.
From a tax perspective, a partnership is a pass-through entity.
Does not necessarily terminate on the death, resignation, and even bankruptcy of a
partner. Other partners can decide to continue.
Limitations of General Proprietorship - Answers -Individual partners are personally
liable, just as in a proprietorship.
When the partnership cannot repay its debts, honor its contracts, or fulfill its tort
liabilities, aggrieved parties can proceed against the partners in their individual capacity.
A partnership too faces difficulty in raising capital.
Thus, the opportunities for growth may be limited by the ability of the partners to invest.
Joint Venture - Answers -A one-time partnership between two or more persons for a
specific purpose.
The parties to the joint venture should have a common interest, have the right to
govern, share in the venture's profits/losses, and be willing to contribute money, time,
and/or skill for the success of the venture.
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