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المملكة العربية السعوديةوزارة التعليم
الجامعة السعودية اإللكترونية
Kingdom of Saudi Arabia
Ministry of Education
Saudi Electronic University
College of Administrative and Financial Sciences
Case Study (2nd Term 2021-2022)
Course Name:
Course Code: LAW101
Student’s Name:
Semester: 2nd
CRN:
Student’s ID Number:
Academic Year: 1442/1443 H, 2nd Term
For Instructor’s Use only
Instructor’s Name:
Students’ Grade:
Level of Marks: High/Middle/Low
Instructions – PLEASE READ THEM CAREFULLY
•
•
This assignment is an individual assignment.
Due date for Assignment 1 is 12/03/2022
• The Assignment must be submitted only in WORD format via allocated folder.
• Assignments submitted through email will not be accepted.
• Students are advised to make their work clear and well presented, marks may be reduced
for poor presentation. This includes filling your information on the cover page.
• Students must mention question number clearly in their answer.
• Late submission will NOT be accepted.
• Avoid plagiarism, the work should be in your own words, copying from students or other
resources without proper referencing will result in ZERO marks. No exceptions.
• All answered must be typed using Times New Roman (size 12, double-spaced) font. No
pictures containing text will be accepted and will be considered plagiarism).
Submissions without this cover page will NOT be accepted.
Kingdom of Saudi Arabia
Ministry of Education
Saudi Electronic University
المملكة العربية السعودية
وزارة التعليم
الجامعة السعودية اإللكترونية
College of Administrative and Financial Sciences
Case Study
Ahmad and his friend, A.G. Pennypacker, have come up with a great idea: they have
developed a fluoroelastomer liner (a rubber lining) for oil tankers. With this innovation,
they believe they can eliminate most oil spills that result from tanker accidents. The liner
is highly resistant to fluctuations in temperature as well as physical punctures.
Ahmad wants to set up a company, but is unsure of his options and has come to you for
advice for the type of business entity formation he should select. He has the following
concerns:
1. He does not want his other business concerns being held liable should there be a lawsuit
arising from use/sale of this product.
2. He wants an entity form that will minimize his tax liability.
Based on the entity forms detailed in Chapter 35, select one you feel satisfies his
concerns. Make sure to explain why it is the best for Ahmad and Pennypacker.
Action Items
1. Read the case study above.
2. By the due date, submit your answers to the case study questions. Justify your answers
Kingdom of Saudi Arabia
Ministry of Education
Saudi Electronic University
المملكة العربية السعودية
وزارة التعليم
الجامعة السعودية اإللكترونية
College of Administrative and Financial Sciences
Chapter 35
Forms of Business
Organizations
McGraw-Hill/Irwin
Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 35 Ethical Dilemma
As this chapter indicates, a corporation is a legal construct with an identity
separate and apart from its owner(s). The primary legal advantage to converting
one’s business from an unincorporated enterprise to the corporate form is the
ability to avoid personal liability for the business’s financial obligations. Since the
corporation is distinguishable from its owner, the owner’s personal assets cannot
be seized to satisfy business indebtedness. This effectively means that an owner
can “crash and burn” a corporation financially, bankrupt the business, and walk
away from the “flaming wreckage” of the corporation without personal obligation
for business debts.
Is it ethical for an owner to use the corporate entity to avoid personal obligation for
business debts?
35-*
Chapter 35 Case Hypothetical
Allison Seizer has a very wealthy father, entrepreneur Warren Seizer of “Chimichonga Chime” restaurant
fame, although her family pedigree was not what attracted Blake Patterson to his girlfriend of three years;
instead, it was “love at first sight.” Blake proposes to Allison, and the two are married with the blessing of
Warren Seizer.
Warren wants the best for his daughter and son-in-law, so he offers a “Chimichonga Chime” franchise to
Blake, with a prime location in the center of the Elmwood business district. After one year, it is clear that
the newest “Chimichonga Chime” is and will be a tremendous business success. In fact, sales, revenue
and profit goals for the restaurant are shattered in its first year of operation, and Blake would like to think
that his “hands-on” ownership and operation of the restaurant was an important part of the store’s success.
Unfortunately, the couple’s relationship has suffered over the year, and the term “irreconciliable
differences” creeps into marriage conversations. Blake asks for his freedom, and Allison obliges. Wedding
bells have been replaced by divorce attorneys.
Warren Seizer is furious. He is firmly convinced that Blake Patterson is to blame for the marriage’s
dissolution, because there is no conceivable way (at least in his mind) that his “darling angel,” his
“precious daughter,” could be responsible for the divorce. The creative genius behind “Chimichonga
Chime” plots justice for his daughter and himself, although some may call it revenge.
On September 1, Warren Seizer personally delivers a Notice of Termination of Franchise to Blake
Patterson. The document states that Patterson’s franchise agreement has been terminated for cause, and
that he must either close the restaurant, or cease and desist from using the name “Chimichonga Chime,”
advertising the franchise chime logo, and selling all franchise-related products, within 30 days.
Who wins: The “ex-father-in-law,” or the “ex-son-in-law?”
35-*
Major Forms of Business Organizations
■
Sole Proprietorship
■
General Partnership
■
Limited Partnership
■
Corporation
35-*
Sole Proprietorship
■
Definition: Unincorporated business owned by one person
■
Owner has total control
■
Owner has unlimited liability
■
Profits taxed directly as income to sole proprietor
35-*
Advantages and Disadvantages of Sole
Proprietorship
■
■
Advantages
■
Ease of creation (“start-up”)
■
Owner has total managerial control
■
Owner retains profits
Disadvantages
■
Personal liability for all business debts/obligations
■
Funding limited to personal contributions and loans
35-*
General Partnership
■
Definition: Unincorporated business owned and operated by
two or more persons
■
Each partner has equal control of business
■
Each partner has unlimited, personal liability for business
debts/obligations
■
Profits taxed as income to partners
35-*
Advantages and Disadvantages of Partnership
■
■
Advantages
■
Ease of creation (“start-up”)
■
Partnership income is partner income
■
Business losses qualify for tax deduction
Disadvantages
■
Personal liability for all business debts/obligations, including those
incurred by other partners on behalf of partnership
35-*
Limited Partnership
■
Definition: Unincorporated business with at least one general
partner, and one limited partner
■
General partner in limited partnership has
managerial/operational control over business
■
Limited partner’s liability limited to extent of his/her capital
contributions
■
Limited partner has no managerial/operational control over
business
35-*
Corporation
■
Definition: State-sanctioned business with legal identity separate
and apart from its owners (shareholders)
■
Owners’ (shareholders’) liability limited to amount of investment
in corporation
■
Profits taxed as income to corporation, plus income to
owners/shareholders (“double-taxation”)
■
“S” Corporation can avoid double-taxation
35-*
Advantages and Disadvantages of Corporation
■
■
Advantages
■
Limited liability for shareholders
■
Ease of raising capital by issuing (selling) stock
Disadvantages
■
“Double-taxation”
■
Formalities required in establishing and maintaining corporate existence
35-*
“S” Corporation
■
Definition: Business organization formed under federal tax law
that is considered corporation, yet taxed like a partnership
■
Formed under federal law
■
No more than seventy-five shareholders
■
Shareholders must report income on their personal income tax
forms
35-*
Limited Liability Company (LLC)
■
Definition: Business organization with limited liability of a
corporation, yet taxed like partnership
■
Formed under state law
■
Owners of LLC (“members”) pay personal income taxes on
shares they report
■
No limitation on number of owners permitted in LLC
35-*
Specialized Forms of Business Organizations
■
Cooperative—Organization formed by individuals to market products
■
Joint stock company—Partnership agreement in which company members hold
transferable shares, while all company goods are held in names of partners
■
Business Trust—Business organization governed by group of trustees, who operate
trust for beneficiaries
■
Syndicate—Investment group that forms for purpose of financing specific large
project
■
Joint Venture—Relationship between two or more persons/corporations created for
specific business undertaking
■
Franchise—Agreement between “franchisor” (owner of trade name/trademark) and
“franchisee” (person who, by specific terms of agreement, sells goods/services under
trade name/trademark)
35-*
Advantages and Disadvantages of Franchise
(To Franchisee)
■
■
Advantages
■
Assistance from franchisor in starting franchise
■
Trade name/trademark recognition
■
Franchisor advertising
Disadvantages
■
Must meet contractual requirements, or possibly lose franchise
■
Little/no creative control over business
35-*
Advantages and Disadvantages of Franchise (To
Franchisor)
■
■
Advantages
■
Low risk in starting franchise
■
Increased income from franchises
Disadvantages
■
Little control (except contractually) over individual franchise
■
Can become liable for franchise, if franchisor exerts too much control
35-*
Types of Franchises
■
“Chain-Style” Business Operation
■
■
Distributorship
■
■
Franchisor helps franchisee establish a business (using franchisor’s
business name, and franchisor’s standard “methods and practices”)
Franchisor licenses franchisee to sell franchisor’s product in specific area
Manufacturing Arrangement
■
Franchisor provides franchisee with technical knowledge to manufacture
franchisor’s product
35-*
Top Ten Global Franchises (2009)
■
Subway
■
Ace Hardware Corp.
■
McDonald’s
■
Pizza Hut
■
Liberty Tax Service
■
UPS Store
■
Sonic Drive In Restaurants
■
Circle K
■
Intercontinental Hotels
Group
■
Papa John’s International,
Inc.
35-*
Chapter FORM OF BUSINESS ORGANIZATION
Major from Business Organization
1- Sole Proprietorship
Definition: Unincorporated business owned by one person
األعمال الفردية التي يملكها شخص واحد:مؤسسة فردية التعريف
Owner has total control
مالك لديه السيطرة الكاملة
Owner has unlimited liability
المالك لديه مسؤولية غير محدودة
Profits taxed directly as income to sole proprietor األرباح للضريبة مباشرة كإيرادات إلى المالك الوحيد
Advantages
–
Ease of creation (‘start-up”)
Owner retains profits
Disadvantages
–
المزايا
)سهلة االنشاء(البدء
يحتفظ المالك باالرباح
السلبيات
Personal liability for all business debts/ obligations يتحمل الشخص كامل االلتزامات والديون
Funding limited to personal contributions
التمويل محدود من المساهمات الشخصية
2- General Partnership
Definition: Unincorporated business owned and operated by two or more persons
األعمال التجارية غير المملوكة والمملوكة من قبل شخصين أو أكثر:التعريف
– Each partner has equal control of business
لكل شريك سيطرة متساوية على العمل
– Each partner has unlimited, personal liability for business debts/ obligations
االلتزامات/ كل شريك لديه مسؤولية شخصية غير محدودة عن الديون التجارية
– Profits taxed as income to partners
األرباح المحققة كالدخل للشركاء
Advantages
المزايا
1) Ease of creation (‘start-up’)
2) Partnership income is partner income
3) Business losses qualify for tax deduction
Disadvantages
)سهلة االنشاء (البدء
دخل الشراكة هو دخل الشركاء
خسائر األعمال مؤهلة للحصول على خصم الضرائب
السلبيات
Personal liability for all business debts/ obligation, including those incurred by other partners on
behalf of partnership
بما في ذلك تلك التي يتكبدها الشركاء اآلخرون نيابة عن الشراكة، االلتزام/ المسؤولية الشخصية عن جميع الديون التجارية
3- Limited Partnership الشراكة المحدودة
Definition: Unincorporated business with at least one general partner, and one limited partner
وشريك واحد محدود، األعمال التجارية الفردية مع شريك عام واحد على األقل:تعريف
General partner in limited partnership has managerial/ operational control over business
التشغيلية على األعمال التجارية/ شريك عام في شراكة محدودة لديه السيطرة اإلدارية
Limited partner’s liability limited to extent of his / her capital contributions
تقتصر مسؤولية الشريك المحدود على مدى مساهماته الرأسمالية
Limited partner has no managerial/ operational control over business
تشغيلية على األعمال/ ال يملك الشريك المحدود أي سيطرة إدارية
1
Chapter FORM OF BUSINESS ORGANIZATION
4-Corporation
شركة
Definition: State-sanctioned business with legal identity separate and apart from its owners
(shareholders)
) األعمال التجارية المعتمدة من الدولة ذات الهوية القانونية منفصلة وبصرف النظر عن أصحابها (المساهمين:التعريف
Owners’ (shareholders) liability limited to amount of investment in corporation
تقتصر مسؤولية المالكين (المساهمين) على مقدار االستثمار في الشركة
Profits taxed as income to corporation, plus income to owners/shareholders (“double-taxation”)
)” المساهمين (“اإلزدواج الضريبي/ باإلضافة إلى الدخل إلى المالك، األرباح المحققة كدخل للشركة
“S” Corporation can avoid double-taxation
يمكن لشركة تجنب االزدواج الضريبي
Advantages
المزايا
Limited liability for shareholders
ذات مسؤولية محدودة للمساهمين
Ease of raising capital by issuing (selling) stock سهولة زيادة رأس المال عن طريق إصدار (بيع) األوراق المالية
–
Disadvantages
–
السلبيات
“Double-taxation”
“”ضريبة مضاعفة
Formalities required in establishing and maintaining corporate existence
الشكليات المطلوبة في إنشاء والحفاظ على وجود الشركات
“S” Corporation
–
Definition: Business organization formed under federal tax law that is considered corporation,
yet taxed like a partnership
ولكن ضرائبها مثل الشراكة، منظمة تجارية تشكلت بموجب قانون الضرائب االتحادي الذي يعتبر شركة:التعريف
Formed under federal law
تشكل بموجب القانون االتحادي
No more than seventy-five shareholders ال يزيد عن خمسة وسبعين من المساهمين
Shareholders must report income on their personal income tax forms
يجب على المساهمين اإلبالغ عن الدخل على استمارات ضريبة الدخل الشخصية
Limited Liability Company (LLC)
Definition: Business organization with limited liability of corporation, yet taxed like partnership
مع فرض ضرائب عليها كشراكة، مؤسسة تجارية ذات مسؤولية محدودة عن الشركات:التعريف
Formed under state Law
شكلت بموجب قانون الوالية
Owners of LLC (“members”) pay personal income taxes on shares they report
يدفع مالكو الشركة (“األعضاء”) ضرائب دخل شخصية على األسهم التي يبلغون عنها
No limitation on number of owners permitted in LLC
ال قيود على عدد مالكي مسموح به في الشركة
Specialized forms of Business Organizations
1) Cooperative-Organization formed by individuals to market product
منظمة تعاونية يشكلها األفراد لتسويق المنتج
2) Joint stock company- partnership agreement in which company members hold transferable
shares, while all company goods are held in names of partners
في حين يتم االحتفاظ بجميع سلع، اتفاقية شراكة الشركات المساهمة التي يحتفظ فيها أعضاء الشركة بأسهم قابلة للتحويل
الشركة بأسماء الشركاء
3) Business Trust – Business organization governed by group of trustees, who operate trust for
beneficiaries
الذين يعملون الثقة للمستفيدين، تنظيم األعمال يحكمه مجموعة من األمناء- ثقة االعمال
4) Syndicate – Investment group that forms for purpose financing specific large project
مجموعة االستثمار التي تشكل لغرض تمويل مشروع كبير محدد- النقابة
2
Chapter FORM OF BUSINESS ORGANIZATION
5) Joint Venture- relationship between two or more persons/ corporations created for specific
business undertaking
الشركات التي تم إنشاؤها للقيام بمشاريع تجارية محددة/ عالقة بين شخصين أو أكثر من الشركات- مجازفة مشتركة
6) Franchise – Agreement between “franchisor” (owner of trade name/ trademark) and “franchise”
(person who by specific term of agreement, sells good/ services under trade name / trademark)
1) العالمة التجارية) و “االمتياز” (الشخص الذي يمنحه/ االتفاق بين “صاحب االمتياز” (مالك االسم التجاري- االمتياز
العالمة التجارية/ الخدمات تحت االسم التجاري/ يبيع السلع، )اتفاقًا محددًا
Advantages and Disadvantages of Franchise (To franchisee) صاحب االمتياز
Advantages
–
Disadvantages
–
المزايا
Assistance from franchisor in starting franchise المساعدة من صاحب االمتياز في بدء االمتياز
Trade name/trademark recognition
االعتراف بالعالمة التجارية/ االسم التجاري
Franchisor advertising
اإلعالن عن االمتياز
السلبيات
Must meet contractual requirements, or possibly lose franchise
أو ربما يفقد حق االمتياز، يجب أن يفي بمتطلبات تعاقدية
Little/no creative control over business
ال سيطرة إبداعية على األعمال التجارية/ القليل
Advantages and Disadvantages of Franchise (To franchisor) مانح االمتياز
Advantages
–
–
الخطورة منخفضة في بدء امتياز
زيادة الدخل من االمتيازات
Low risk in starting franchise
Increased income from franchises
Disadvantages
–
المزايا
السلبيات
Little control (except contractually) over individual franchise
تحكم بسيط (باستثناء تعاقدي) على االمتياز الفردي
Can become liable for franchise, if franchisor exerts too much control
إذا كان مانح االمتياز يمارس الكثير من السيطرة، يمكن أن تصبح مسؤولة عن االمتياز
Types of Franchises أنواع االمتياز
1- “Chain-Style” Business Operation
عملية “نمط السلسلة” التجارية
– Franchisor helps franchisee establish a business (using franchisor’s business name, and
franchisor’s standard “methods and practices”)
– ، يساعد مانح االمتياز في الحصول على حق االمتياز في تأسيس عمل تجاري (باستخدام اسم صاحب االمتياز التجاري
)وأساليب وممارسات “حق االمتياز” القياسية
2- Distributorship
التوزيع
– Franchisor licenses franchisee to sell franchisor’s product in specific area
يأذن مانح االمتياز لصاحب االمتياز ببيع منتج االمتياز في منطقة محددة
3- Manufacturing Arrangement
نظام التصنيع
– Franchisor provides franchisee with technical knowledge to manufacture franchisor’s product
يوفر مانح االمتياز حق االمتياز بالمعرفة التقنية لتصنيع منتج االمتياز
3
