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BUS 131 Chapter 36 Notes

by: Whitney Davis

BUS 131 Chapter 36 Notes BUS 131 - 010

Whitney Davis
Kutztown University of Pennsylvania

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About this Document

An outline of chapter 36
Business Law I
Dr. Slamon
Class Notes
25 ?




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This 3 page Class Notes was uploaded by Whitney Davis on Monday April 18, 2016. The Class Notes belongs to BUS 131 - 010 at Kutztown University of Pennsylvania taught by Dr. Slamon in Spring 2016. Since its upload, it has received 17 views. For similar materials see Business Law I in Business at Kutztown University of Pennsylvania.

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Date Created: 04/18/16
Chapter 36: Sole Proprietorships and Franchises Goals of many business students is to become and Entrepreneur  Entrepreneur o One who initiates and assumes the financial risk of a new business enterprise and undertakes to provide or control its management  Entrepreneur must consider a number of factors: o Ease of creation o Liability of the owners o Tax consideration o Ability to raise capital  Entrepreneurs use three major business forms: o Sole proprietorship o Partnership o Corporation Sole Proprietorships  The owner is the business  Simplest form of business  Advantages o Proprietor owns entire business and receives all profits o Flexibility  Business organization is more flexible in contrast to partnership or corporation o Taxes  Pays only personal income taxes (including Social security and Medicare)  Disadvantages o Proprietor alone bears suffers from any losses or liabilities uncured by the business enterprise o Personal assets at risk  Creditors can seek owner’s personal assets to satisfy any business debts o Lack of continuity  After death of proprietor Franchises  When the owner of intellectual property licenses others to use it in the selling of their product  Franchisee (purchaser of a franchise) is legally independent of the franchisor (seller of the franchise)  Types: o Distributorship  A manufacturer (franchisor) licenses a dealer (franchisee) to sell its products  Usually covers exclusive territory o Chain-style Business operation  Franchise operates under franchisor’s trade name  Ex. McDonalds, subway, other fast food chains o Manufacturing Arrangement  A.k.a. a processing plant  Franchisor transmits to franchisee the essential formula to make particular product  Laws Governing Franchising o Federal Regulation of Franchises o Franchise Rule created by Federal Trade Commission (FTC)  Written disclosures  Reasonable basis for any representations  Projected earnings figures  Actual data  Explanation of terms o State regulation of franchising  State disclosures  May require Good Cause to terminate franchise  The Franchise Contract o Relationship between franchisor and franchisee o If either party breaches contractual duties, party may be subject to lawsuit for breach of contract o Payment for the franchise  Franchisee usually pays an initial fee for franchise license o Business Premises  Agreement may specify if premises for business must be leased or purchased outright o Location of franchise  Franchisor determines territory o Business organization o Quality control  Franchisee is in charge of day-to-day operation of business o Pricing arrangements  Franchisee provides franchisor with outlet for firm’s gods and services Franchise Termination  Grounds for Termination Set by Franchise Contract o Termination must be “for cause” defining grounds of termination o Notice requirements  If no set time for termination, then a reasonable time with notice is implied o Opportunity to cure a breach  Wrongful Termination o Franchisee may receive little to nothing for the business upon termination o Franchisor then owns trademark and business  Importance of Good Faith and Fair Dealing o Emphasized by statutory and case laws o If court acknowledges that franchisor has unfairly terminated franchise, franchisee will be provided with remedy for wrongful termination


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