For this milestone, you will discuss Case Study Three. Identify the main types of business entities, and discuss the advantages and disadvantages of each. Your active participation in this discussion is essential to improving your understanding of the advantages and disadvantages of the various business entities. Actively engaging with your peers will help you complete the remaining critical elements for the final project.
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After reading this chapter, you will be able to answer the following questions:
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What are the major forms of business organization, and what are the differences among them?
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2
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What are the specialized forms of business organization?
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3
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What is a franchise?
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CASE OPENER
The Dunkin’ Donuts Franchise Agreement
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Dunkin’s Donuts Corporation operates numerous restaurants worldwide, organizing many of them as franchises. Dunkin’ Donuts has the exclusive license to use and to license others to use its trademarks, service marks, and trade name. These marks and trade name have been used continuously since 1960 to identify Dunkin’s doughnut shops as well as the doughnuts, pastries, coffee, and other products associated with those shops. Dipak N. Bhayani operated two Dunkin’ Donuts franchises in Illinois for many years. Dunkin’ Donuts later notified Bhayani that his two franchises had been violating parts of the franchise license agreement. After repeated incidents and failure to cure the violations over a substantial period of time, Dunkin’ Donuts (the franchisor) demanded termination of both of Bhayani’s franchises.
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Did Dunkin’ Donuts lawfully revoke Bhayani’s franchises?
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What are some potential problems that a franchisor and a franchisee might experience in their relationship?
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The Wrap-Up at the end of the chapter will answer these questions.
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p. 771
Suppose you come up with an idea to produce a novel product you think could lead to enormous profits. But what is the best way to produce this product? Should you do it yourself by creating your own business? Do you have enough money to create your own business? What are the legal ramifications if your business is not successful? What legal responsibilities do you have with respect to your business?
Perhaps you share your idea with your best friend, who suggests that the two of you become partners in the production and sale of this product. What are the benefits associated with forming a partnership? What are the disadvantages? Are there other forms of business you should consider?
Choosing the form of business to create is one of the most important decisions an enterprise makes. The extent of liability and control the owner will have depends on the form of the business. The business world is not static, however, and businesses can and do change form over time, so this chapter relates not only to new businesses but also to existing ones. The first section introduces the major types of business organizations, describing how these forms are both created and ended. The second section considers several types of business organizations that are less well known, but important nevertheless.
PART 7 |
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Business Organizations |
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After reading this chapter, you will be able to answer the following questions:
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What is a partnership?
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2
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What are the different ways in which a partnership can be formed?
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3
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What are the rights of partners as they interact with each other?
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4
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Are all members of a partnership liable for interactions with third parties?
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CASE OPENER
Jax Restaurant Partnership
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One afternoon in October 2000 Nicole Moren completed her day shift at Jax Restaurant at 4 p.m. and left to pick up her two-year-old son from day care. Moren was a partner in the restaurant. At about 5:30, Moren returned to the restaurant with her son after learning that her sister and partner, Amy Benedetti, needed help. Moren then called her husband to pick up their child. Because Moren did not want her son running around the restaurant, she brought him into the kitchen with her and put him on top of the counter until his ride arrived. While she was making pizzas, her son reached his hand into the dough-pressing machine. Unfortunately, his hand was crushed, resulting in permanent damages.
As a result of his son’s debilitating accident, the child’s father commenced a negligence action against the partnership. Therefore, the partnership served a third-party complaint on Nicole Moren, arguing that if the restaurant was obligated to compensate her son, the partnership was entitled to indemnity (reimbursement) from Moren for her own negligence. In other words, the partnership argued that it should not be held financially liable for the damages because the accident was Moren’s own fault since she let her son enter the kitchen and play near the dough press.
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Is the partnership as a whole liable even though it was primarily Moren’s negligence that caused her son’s injury?
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What could Jax Restaurant have done to avoid this suit?
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The Wrap-Up at the end of the chapter will answer these questions.
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In the Jax Restaurant case, the court had to consider the laws of partnership in determining whether to find the partnership as a whole liable. The Uniform Partnership Act (UPA) is the main statute governing partnership law. If there is no express partnership agreement, UPA establishes the rules for the partnership.
This chapter discusses the creation and operation of the partnership, and the following chapter considers how partnerships are terminated as well as special types of partnerships. The first section of this chapter considers the nature of the partnership relationship, how partnerships are created, and how they function.
PART 7 |
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Business Organizations |
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After reading this chapter, you will be able to answer the following questions:
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1
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What are the steps in the termination of a partnership?
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2
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How is a limited partnership formed?
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3
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What are the rights and privileges of a limited partner and a general partner?
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CASE OPENER
Partnership Problems of Wildmeadow Village
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Christian Wyller was a partner in Wildmeadow Village partnership, which owned an office building in Juneau, Alaska. Under difficult economic circumstances, the partnership received an invitation to bid (ITB) from the state of Alaska to lease approximately 7,000 square feet of office space for five years. Wildmeadow secured the bid from the state. The partners held a partnership meeting and approved the state lease and various improvements necessary to meet the bid specifications. At the partnership meeting, it was reported that improvements of roughly $120,000 were necessary to meet the state bid. However, some of Wyller’s partners authorized work on the entire building, including repairs not necessary for the state lease and not properly approved by the partnership. The total cost of repairs and improvements actually made to the building was $257,000, and the excess repairs were not authorized by the entire partnership.
After construction began, the partners discovered that their loan application to the bank was rejected and they would have to pay for the entirety of the repairs out of pocket. Wyller expressed reluctance to pledge cash or personal collateral for a loan, objected to substantial expenditures made without authorization, and said that he was at the limit of his resources. He would not pay for repairs he did not approve. Subsequently, the construction bills were not paid, and the construction company brought suit against Wildmeadow Village partnership and its individual partners. At trial, Wyller argued that he was entitled to damages because he did not authorize the repairs and he did not wrongfully cause the dissolution of the partnership. The court found Wyller partially at fault for the dissolution of the partnership and therefore not entitled to damages from the other partners. Wyller appealed to the supreme court of Alaska.
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Should Wyller have to pay construction costs for the repairs he did not authorize?
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How are partnerships dissolved?
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The Wrap-Up at the end of the chapter will answer these questions.
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PART 7 |
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Business Organizations |
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After reading this chapter, you will be able to answer the following questions:
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What are the characteristics of corporations?
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2
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What are the powers granted to corporations by the states?
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3
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How are corporations classified?
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4
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How are corporations formed?
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5
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What are some potential problems with the formation of corporations?
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6
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How do corporations get funding?
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CASE OPENER
The Formation of the Facebook Corporation
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On October 28, 2003, Mark Zuckerberg was a sophomore at Harvard University when he created a Web site called Facemash that was similar to an existing Web service called Hot or Not. However, the following semester, in 2004, Zuckerberg began working on a new code for a new Web site to be called Facebook. His friends Eduardo Saverin, Dustin Moskovitz, Andrew McCollum, and Chris Hughes joined Zuckerberg to promote the new social networking site. Membership on the site quickly grew from only students at Harvard College to students at most universities in the United States. In the summer of 2004, Facebook was incorporated. As a corporation, Facebook is an “artificial person,” a status with legal ramifications for both the corporate entity and its owners.
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What are the legal implications of Facebook’s status as a corporation?
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How are corporations formed? What factors should a businessperson consider in forming a corporation?
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The Wrap-Up at the end of the chapter will answer these questions.
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p. 831
This chapter explains the steps necessary to establish a corporate entity. Although state law generally governs corporations and each state has its own corporate regulatory statutes, the Revised Model Business Corporation Act (RMBCA) is the basis of most state statutes. More than 25 states have adopted at least part of RMBCA. This chapter refers to specific RMBCA guidelines, but remember that not all states follow them.
The first two sections of this chapter examine corporations’ characteristics and powers. The third section describes different classifications of corporations. The next section explains the process of corporate formation and problems associated with it, and the final section covers corporate financing.
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