chapter 4

Question 1

acquisition

Answer 1

The purchase of a target company by another corporation or by an investor group typically negotiated with the target company board of directors.

Question 2

board of directors

Answer 2

A group of people elected by the stockholders to handle the overall management of a corporation, such as setting major corporate goals and policies, hiring corporate officers, and overseeing the firm’s operations and finances.

Question 3

buyer cooperative

Answer 3

A group of cooperative members who unite for combined purchasing power.

Question 4

C corporation

Answer 4

A conventional or basic form of corporate organization.

Question 5

conglomerate merger

Answer 5

A merger of companies in unrelated businesses; done to reduce risk.

Question 6

cooperative

Answer 6

A legal entity typically formed by people with similar interests, such as suppliers or customers, to reduce costs and gain economic power. A cooperative has limited liability, an unlimited life span, an elected board of directors, and an administrative staff; all profits are distributed to the member-owners in proportion to their contributions.

Question 7

corporation

Answer 7

A legal entity with an existence and life separate from its owners, who are not personally liable for the entity’s debts. A corporation is chartered by the state in which it is formed and can own property, enter into contracts, sue and be sued, and engage in business operations under the terms of its charter.

Question 8

franchise agreement

Answer 8

A contract setting out the terms of a franchising arrangement, including the rules for running the franchise, the services provided by the franchisor, and the financial terms. Under the contract, the franchisee is allowed to use the franchisor’s business name, trademark, and logo.

Question 9

franchisee

Answer 9

In a franchising arrangement, the individual or company that sells the goods or services of the

Question 10

franchising

Answer 10

A form of business organization based on a business arrangement between a franchisor, which supplies the product or service concept, and the franchisee, who sells the goods or services of the franchisor in a certain geographic area.

Question 11

franchisor

Answer 11

In a franchising arrangement, the company that supplies the product or service concept to the franchisee.

Question 12

general partners

Answer 12

Partners who have unlimited liability for all of the firm’s business obligations and who control its operations.

Question 13

general partnership

Answer 13

A partnership in which all partners share in the management and profits. Each partner can act on behalf of the firm and has unlimited liability for all its business obligations.

Question 14

horizontal merger

Answer 14

A merger of companies at the same stage in the same industry; done to reduce costs, expand product offerings, or reduce competition.

Question 15

joint venture

Answer 15

Two or more companies that form an alliance to pursue a specific project, usually for a specified time period.

Question 16

leveraged buyout (LBO)

Answer 16

A corporate takeover financed by large amounts of borrowed money; can be started by outside investors or the corporation’s management.

Question 17

limited liability company (LLC)

Answer 17

A hybrid organization that offers the same liability protection as a corporation but may be taxed as either a partnership or a corporation.

Question 18

limited partners

Answer 18

Partners whose liability for the firm’s business obligations is limited to the amount of their investment. They help to finance the business but do not participate in the firm’s operations.

Question 19

limited partnership

Answer 19

A partnership with one or more general partners, who have unlimited liability, and one or more limited partners, whose liability is limited to the amount of their investment in the company.

Question 20

merger

Answer 20

The combination of two or more firms to form one new company.

Question 21

partnership

Answer 21

An association of two or more individuals who agree to operate a business together for profit.

Question 22

S corporation

Answer 22

A hybrid entity that is organized like a corporation, with stockholders, directors, and officers, but taxed like a partnership, with income and losses flowing through to the stockholders and taxed as their personal income.

Question 23

seller cooperative

Answer 23

Individual producers who join together to compete more effectively with large producers.

Question 24

sole proprietorship

Answer 24

A business that is established, owned, operated, and often financed by one person.

Question 25

stockholders (or shareholders)

Answer 25

The owners of a corporation who hold shares of stock that carry certain rights.

Question 26

vertical merger

Answer 26

A merger of companies at different stages in the same industry; done to gain control over supplies of resources or to gain access to different markets.