Chapter 4

Question 1

Sole Proprietorship

Answer 1

a business that is established, owned, operated, and often financed by 1 person

Question 2

Partnership

Answer 2

an association of 2 or more individuals who agree to operate a business together for profit

Question 3

Written Partnership Agreement

Answer 3

spelling out the terms & conditions of the partnership

Question 4

General Partnership

Answer 4

all partners share in the management & profits, each having unlimited liability for all the business obligations

Question 5

Limited Partnership - General Partners

Answer 5

have unlimited liability

Question 6

Limited Partnership - Limited Partners

Answer 6

liability is limited to the amount of their investment

Question 7

Limited Liability Partnership (LLP)

Answer 7

similar to a general partnership except that partners are not held responsible for the business debt & liability

Question 8

Limited Liability Limited Partnership (LLLP)

Answer 8

a limited partnership with the addition of limited liability; protects the general partner from debt & liabilities

Question 9

Liability

Answer 9

the state of being responsible for something, especially by law

Question 10

Corporation

Answer 10

a legal entity subject to the laws of the state in which it was formed, where the right to operate as a business is issued by state charter; taxable, and owners are not liable

Question 11

Bylaws

Answer 11

provide legal & managerial guidelines for operating the firm

Question 12

C-Corporation

Answer 12

conventional or basic form of corporate organizations

Question 13

S-Corporation

Answer 13

hybrid entity; taxed like a partnership, more restrictions, no personal liability to debt

Question 14

Limited Liability Corporation (LLC)

Answer 14

hybrid organization; easy start-up, limited restrictions, same liability as corporations; popular after a 1988 tax ruling giving them the option to be taxed as partnership or corporation

Question 15

Cooperative

Answer 15

legal entity with several corporate features; not subject to taxes, do not retain profits

Question 16

Buyer Cooperative

Answer 16

combine members’ purchasing power; ex. Ace Hardware

Question 17

Seller Cooperative

Answer 17

popular in agriculture, individual producers join to compete against large producers

Question 18

Joint Venture

Answer 18

2 or more companies form an alliance to pursue a specific project

Question 19

Franchising

Answer 19

a form of business organization that involves a franchisor

Question 20

Franchisor

Answer 20

the company supplying the product or service concept

Question 21

Franchisee

Answer 21

the individual or company selling the goods or services in a certain geographic area

Question 22

Franchise Agreement

Answer 22

a contract that allows the franchisee to use the franchisor’s business name, trademark, & logo

Question 23

Merger

Answer 23

occurs when 2 or more firms combine to form a new company

Question 24

Acquisition

Answer 24

a corporation or investor group finds a target company and negotiates with its board of directors to purchase it

Question 25

Horizontal Merger

Answer 25

companies at the same stage in the same industry merge to reduce costs, expand product offerings, or reduce competition

Question 26

Vertical Merger

Answer 26

company buys a firm in its same industry, often involved in an earlier or later stage of the production or sales process

Question 27

Conglomerate Merger

Answer 27

brings together companies in unrelated businesses to reduce risk

Question 28

Leveraged Buyout (LBO)

Answer 28

specialized, financially motivated, corporate takeovers financed by large amounts of borrowed money - as much as 90% of the purchase price

Question 29

Merger Motives

Answer 29

to improve the overall performance of the merged firms through cost savings, elimination of overlapping operations, improved purchasing power, increase market share, & reduced competition