PowerPoint Slides to Accompany BUSINESS LAW E-Commerce and Digital Law International Law and Ethics 5th Edition

by Henry R. Cheeseman

Chapter 31 Entrepreneurs and Sole Proprietorships
Slides developed by Les Wiletzky Wiletzky and Associates, Puyallup, WA
Copyright © 2004 by Prentice-Hall. All rights reserved.

Copyright © 2004 by Prentice-Hall.Entrepreneur A person who forms and operates a new business either by him. 31 . All rights reserved.2 .or herself or with others.

.3 Corporation Copyright © 2004 by Prentice-Hall.Entrepreneurial Forms of Conducting Business Sole Proprietorsh ip General Partnership Limited Partnership Limited Liability Partnership Limited Liability Company 31 . All rights reserved.

 Sole proprietorships are the most common form of business organization in the United States.Sole Proprietorship A form of business where the owner is actually the business. 31 .  The business is not a separate legal entity.4 . Copyright © 2004 by Prentice-Hall. All rights reserved.

 No federal or state government approval is required. 31 .Creation of a Sole Proprietorship There are no formalities.  A sole proprietorship can operate under the name of the sole proprietor or a trade name. All rights reserved.  Some local governments require all businesses (including sole proprietorships) to obtain a license to do business within the city.  Copyright © 2004 by Prentice-Hall.5 .

Copyright © 2004 by Prentice-Hall.Creation of a Sole Proprietorship (continued)  A sole proprietorship is not a separate taxpaying entity for federal income tax purposes.  A sole proprietor need not file an informational return with the Internal Revenue Service (IRS). All rights reserved.6 . 31 .  Income and losses are reported on the sole proprietor’s personal income tax return.

7 .  Including those involving hiring and firing employees.Advantages of a Sole Proprietorship  The ease and low cost of formation. 31 . All rights reserved.  The owner’s right to make all management decisions concerning the business. Copyright © 2004 by Prentice-Hall.  The sole proprietor owns all of the business and has the right to receive all of the business’s profits.

Advantages of a Sole Proprietorship (continued) A sole proprietorship can be easily transferred or sold if and when the owner desires to do so.8 . Copyright © 2004 by Prentice-Hall. 31 . All rights reserved.  No other approval (such as from partners or shareholders) is necessary.

Copyright © 2004 by Prentice-Hall.  The sole proprietor is legally responsible for the business’s contracts and the torts committed by the proprietor and his or her employees in the course of employment.Disadvantages of a Sole Proprietorship  The sole proprietor’s access to capital is limited to personal funds plus any loans he or she can obtain.9 . All rights reserved. 31 .

31 .  The owner will lose his or her entire capital contribution if the business fails. All rights reserved.10 . Copyright © 2004 by Prentice-Hall.  The sole proprietor has unlimited personal liability.Personal Liability of a Sole Proprietor  The sole proprietor bears the risk of loss of the business.

11 .Personal Liability of a Sole Proprietor (continued)  Creditors may recover claims against the business from the sole proprietor’s personal assets.  The sole proprietorship and the sole proprietor are one and the same. All rights reserved.  The law holds that a sole proprietorship is not a distinct legal entity. Copyright © 2004 by Prentice-Hall. 31 .

Personal Liability of a Sole Proprietor (continued) Sole Proprietor ship Capital investment Debt or obligation owed Third Party Sole Propriet or (Owner) Personal liability for sole proprietorship’s debts and obligations 31 .12 Copyright © 2004 by Prentice-Hall. All rights reserved. .

13 . 31 .  The main benefits of conducting international business this way are: It is inexpensive  It usually involves just entering into contracts  Copyright © 2004 by Prentice-Hall. All rights reserved.Conducting International Business: Direct Export and Import Sales  The simplest form of conducting international business is to engage in direct export or import sale.

All rights reserved.  Sales Agent – may enter into contracts on behalf of his or her foreign employer.  Does not have authority to bind the company contractually.  Sales Representative – may solicit and take orders for his or her foreign employer. 31 .Conducting International Business: Sales Agents and Representatives  Companies wishing to do business in a foreign country often appoint a local agent or representative to represent them in that country.14 . Copyright © 2004 by Prentice-Hall.

 Copyright © 2004 by Prentice-Hall.  Takes title to the goods and makes a profit on the resale of the goods in the foreign country. A local firm separate and independent from the exporter.Conducting International Business: Foreign Distributor A foreign distributor is generally used when a company wants a greater presence in a foreign market than is possible through a sales agent or representative.15 . 31 . All rights reserved.  Usually given an exclusive territory.

Conducting International Business Using a Branch Office  Branch Office – used where a corporation wants to enter a foreign market in a substantial way but wants to retain exclusive control over the operation.  Copyright © 2004 by Prentice-Hall. 31 .  It is wholly owned by the home corporation.16 . All rights reserved. It is not a separate corporation or legal entity.  It is an extension of the corporate owner.

. Branch Office (in Country B) The branch office is not a separate legal entity. 31 .17 Copyright © 2004 by Prentice-Hall.Conducting International Business Using a Branch Office (continued) Corporatio n A (in Country A) No limited liability shield – Corporation A in Country A is liable for the tort and contract liabilities of its branch office in Country B. All rights reserved.

 Copyright © 2004 by Prentice-Hall. All rights reserved. Must be formed pursuant to the laws of the country in which it is to be located.Conducting International Business Using a Subsidiary Corporation  Subsidiary Corporation – A separate corporation established by the parent corporation to conduct business in a foreign country. 31 .  The parent corporation and the subsidiary organization are separate legal entities that are individually capitalized.18 .

19 Copyright © 2004 by Prentice-Hall.Conducting International Business Using a Subsidiary Corporation (continued) Corporatio n A (in Country A) 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 Corporatio Corporation B. All rights reserved. . 31 . n B (in Country B) Corporation B is a separate legal entity.