Sole Proprietorships, Franchises, and Partnerships

1. Sole Proprietorships, Franchises, and Partnerships

2. 1. Sole Proprietorships The owner is the business. Sue owner – not the company. Case 16.1 Garden City Boxing Club, Inc. v. Dominquez (2006).

3. 2: Franchises • Governed by the contract - The contract states parties’ rights and duties. • Duration of the franchise is a matter determined by contract of the parties

4. Franchise Contract • The Franchise Contract can include: • Franchisee’s type of business entity including capital structure, sales quotas and record keeping. • Location of the Franchise • Premises is leased or purchased. • The initial investment to begin operation ranges from $928,000 to $1,883,250 for a Krispy Kreme Factory Store. • McDonalds - Generally, we require a minimum of $750,000 of non-borrowed personal resources to consider you for a franchise.

5. The Burger King Corporation (BKC) would not allow franchisees to have it their way. Instead, BKC forced them to sell the double-cheeseburger (DCB) and the Buck Double for no more than $1.00. Franchisees alleged that, because this price was below their cost, they were losing money on every double cheeseburger they sold. The National Franchisee Association (NFA), to which 75% of BKC’s individual franchisees belonged, filed suit alleging that (1) BKC did not have the right to set maximum prices; and (2) that even if BKC had such a right, it had violated its obligation under the franchise agreement to act in good faith. Ct:

6. 3. Partnerships • PARTNERSHIPS- • Example, Frank and Don want to launch a business called F & D Partnership. Frank is the brain behind the inventory but Don has the marketing knowledge.

7. When Does a Partnership Exist? There is a presumption of a partnership if: • A sharing of profits or losses. • A joint ownership of the business. • Right to equal management of the business. IE if you act like a partnership, going to be a partnership

8. Case in point CWC contracted with Epsco and Epsco extended credit to CWC. Father filed bankruptcy. Son’s said no partnership

9. Pros and Cons of Partnership

10. LIABILITY • Each partner is deemed to be an agent of the other • What does that mean: Better like and trust your partner • IE – one partner can enter into contracts • Signing of checks

11. Tennessee - • Tennessee - do not need a written formal agreement. • However, if an written agreement exists, what controls the relationship between the partners and partnership.

12. Rights of Partners • A partner’s interest is subject to a creditor’s lien • What does that mean: Creditors may attach to interest so if partner quits paying on car, creditor could get lien against partnership that must be dealt with if partnership dissolves or is sold.

13. Duties and Liabilities of Partners • Liability of Partners: What does that mean? • Joint Liability: third party must sue ALL partners as a group, but each partner can be held liable for the full amount.  • Moren v. Jax Restaurant

14. In other words…… • The entire partnership is liable for the act of one partner in, say, signing a contract. A partnership is also liable for any torts that a partner commits in the ordinary course of the partnership’s business.