1. Chapter 14 Entrepreneurship, Sole Proprietorships, and Franchising
PowerPoint Slides to accompany The Legal Environment of Business and Online Commerce 4E, by Henry R. Cheeseman
Chapter 14
Entrepreneurship,
Sole Proprietorships,
and Franchising
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2. Forms of Conducting Domestic Business
Sole proprietorship
General partnership
Limited partnership
Limited liability partnership (LLP)
Limited liability company (LLC)
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3. Advantages of Sole Proprietorship
Owner is the business; no separate legal entity
Easy and inexpensive to form
Owner has right to make all management decisions concerning the business
Sole proprietor owns all of the business and has the right to receive all of the business’s profits
Sole proprietorship can be easily transferred and sold at owner’s discretion
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4. Personal Liability of Sole Proprietors
Sole proprietor bears the entire risk of loss of the business
He or she will lose his or her entire capital contribution if the business fails
Sole proprietor has unlimited
personal liability
Creditors may recover claims against the business from the sole proprietor’s personal assets
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5. Forms of Conducting Domestic Business
Corporation
Close corporation
Public corporation
S corporation
C corporation
Franchise
Joint venture
Syndicate or investment group
Business trust
Cooperative
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6. What Is a Franchise?
A franchise is established when one party licenses another party to use the franchisor’s trade name, trademarks, commercial symbols, patents, copyrights, and other property
in the distribution and selling of goods and services
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7. Conducting International Business Using a Branch Office
No limited liability shield—
Corporation A in Country A is liable for the tort and contract liabilities of its branch office in Country B
The branch office is not a separate legal entity
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8. Conducting International Business Using a Subsidiary Corporation
Limited liability shield—
Corporation A in Country A is not liable for the tort and contract liabilities of its subsidiary corporation in Country B except up to its capital contribution in Corporation B
Corporation B is a
separate legal entity
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9. Parties to a Franchise Franchisor Franchisee
The party who does the licensing in a franchise situation
Franchisee
The party who is licensed by the franchisor in a franchise situation
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10. Parties to a Typical Franchise Arrangement
Franchisor
(licensor)
Grant of franchise and license to use trademarks, service
marks, and trade secrets
Franchisee
(licensee)
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11. Common Terms of a Franchise Agreement
Quality control standards
Training requirements
Covenant not to compete
Arbitration clause
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12. Common Franchise Fees Initial license fee Royalty fee Assessment fee
Lease fee
Cost of supplies
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13. Trademarks and Service Marks
A distinctive mark, symbol, name, word, motto, or device that identifies the goods or services of a particular franchisor, e.g.,™
Anyone who uses a mark without authorization may be sued for trademark infringement
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14. Contract and Tort Liability of Franchisors and Franchisees
Franchisors and franchisees are liable for their own contracts and torts
Typically, the franchisor deals with the franchisee as an independent contractor
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15. Termination of Franchises
A franchisor can terminate a franchise agreement for “just cause,” e.g. nonpayment of franchise fees by the franchisee or continued failure to meet quality control standards
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