BUL3310 Exam 4 Study Guide | Business Entities,
Franchises & Corporations Verified Questions
Provided with A+ Graded Rationales Latest
Updated 2026
Principals (owners)
generic term for individuals in a business entitled to profits based on percentage of ownership
Factors that business owners should consider when selecting a business entity:
• Formation
• Liability
• Capitalization
• Taxation of Income
• Management and Operation
Sole Proprietorship
One person entity in which the debts and liabilities of the business are also personal debts and
liabilities of the principal
Advantages of Sole Proprietorship
- requires only a minimal fee
- involves straightforward filing requirement
- typically requires no annual filings
- full control of entity
- not subject to corporate income taxation (personal taxation)
Disadvantages of Sole Proprietorship
- unlimited personal liabilities (no protection of principals personal assets; this is the greatest
downside)
- no tax return is filed on behalf of the business
Choices Available to Capitalize a Sole Proprietorship
- personal assets
- private loans
- business/commercial loans
- line of credit
, How proprietorships are managed and taxed:
- Management & Control: 1-person entity
- Taxation: Personal (not subject to corporate income taxation; principal reports business
income and expenses on own individual tax return at individual rate)
Termination of a Sole Proprietorship
either by express act of principal or by operation of law in case of the death or personal
bankruptcy of proprietor
Franchise
a method of conducting business via a contract relationship rather than a business entity (an
arrangement of continuing commercial relationships for the right to operate a business
pursuant to the franchisor's trade name or to sell the seller's branded goods)
Franchise Agreements
Relationship between franchisee and franchisor:
(1) term (time limit) of the agreement;
(2) franchise fees, payment terms, and ongoing investment or
buying requirements;
(3) territory rights: usually provide the franchisee with an
exclusive geographic area;
(4) Commitments from franchisor: for training, ongoing
management support, and advertising;
(5) Commitments from the franchisee: to follow operating
protocol;
(6) Royalties and other fees: that franchisee must pay; and,
(7) Franchisee termination and/or cancellation policies
Corporation
• a fictitious legal entity that is created according to statutory requirements
• created through state law filing, and formation is governed through state statutes modeled on
the RMBCA (Revised Model Business Corporation Act)
Domestic Corporation
operates in the state of its incorporation
Foreign Corporation
corporation transacts business in a state other than its state of incorporation
Franchises & Corporations Verified Questions
Provided with A+ Graded Rationales Latest
Updated 2026
Principals (owners)
generic term for individuals in a business entitled to profits based on percentage of ownership
Factors that business owners should consider when selecting a business entity:
• Formation
• Liability
• Capitalization
• Taxation of Income
• Management and Operation
Sole Proprietorship
One person entity in which the debts and liabilities of the business are also personal debts and
liabilities of the principal
Advantages of Sole Proprietorship
- requires only a minimal fee
- involves straightforward filing requirement
- typically requires no annual filings
- full control of entity
- not subject to corporate income taxation (personal taxation)
Disadvantages of Sole Proprietorship
- unlimited personal liabilities (no protection of principals personal assets; this is the greatest
downside)
- no tax return is filed on behalf of the business
Choices Available to Capitalize a Sole Proprietorship
- personal assets
- private loans
- business/commercial loans
- line of credit
, How proprietorships are managed and taxed:
- Management & Control: 1-person entity
- Taxation: Personal (not subject to corporate income taxation; principal reports business
income and expenses on own individual tax return at individual rate)
Termination of a Sole Proprietorship
either by express act of principal or by operation of law in case of the death or personal
bankruptcy of proprietor
Franchise
a method of conducting business via a contract relationship rather than a business entity (an
arrangement of continuing commercial relationships for the right to operate a business
pursuant to the franchisor's trade name or to sell the seller's branded goods)
Franchise Agreements
Relationship between franchisee and franchisor:
(1) term (time limit) of the agreement;
(2) franchise fees, payment terms, and ongoing investment or
buying requirements;
(3) territory rights: usually provide the franchisee with an
exclusive geographic area;
(4) Commitments from franchisor: for training, ongoing
management support, and advertising;
(5) Commitments from the franchisee: to follow operating
protocol;
(6) Royalties and other fees: that franchisee must pay; and,
(7) Franchisee termination and/or cancellation policies
Corporation
• a fictitious legal entity that is created according to statutory requirements
• created through state law filing, and formation is governed through state statutes modeled on
the RMBCA (Revised Model Business Corporation Act)
Domestic Corporation
operates in the state of its incorporation
Foreign Corporation
corporation transacts business in a state other than its state of incorporation
