Chapter 4 Definitions

Question 1

Sole proprietorship

Answer 1

A business that is owned (and usually operated) by one person.

Question 2

Unlimited liability

Answer 2

A legal concept that holds a business owner personally responsible for all the debts of the business.

Question 3

Partnership

Answer 3

A voluntary association of two or more persons to act as co-owners of a business for profit.

Question 4

General partner

Answer 4

A person who assumes full or shared responsibility for operating a business.

Question 5

Limited Partner

Answer 5

A person who contributes capital to a business but has no management responsibility or liability for losses beyond the amount he or she invested in the partnership.

Question 6

Master Limited Partnership (MLP)

Answer 6

A business partnership that is owned an managed like a corporation but often taxed like a partnership.

Question 7

Corporation

Answer 7

An artificial person created by law with most of the legal rights of a real person including the rights to start an operate a business, to buy or sell property, to borrow money, to sue or be sued, and to enter into binding contracts.

Question 8

Stock

Answer 8

The shares of ownership of a corporation.

Question 9

Stockholder

Answer 9

A person who owns a corporation’s stock.

Question 10

Closed corporation

Answer 10

A corporation whose stock is owned by relatively few people and is not sold to the general public.

Question 11

Open corporation

Answer 11

A corporation whose stock can be bought and sold by any individual.

Question 12

Domestic corporation

Answer 12

A corporation in the state in which it is incorporated.

Question 13

Foreign corporation

Answer 13

A corporation in any state in which it does business except the one in which it is incorporated.

Question 14

Alien corporation

Answer 14

A corporation chartered by a foreign government and conducting business in the United States.

Question 15

Common stock

Answer 15

Stock owned by individuals or firms who may vote on corporate matters but whose claims on profits and assets are subordinate to the claims of others.

Question 16

Preferred stock

Answer 16

Stock owned by individuals or firms who usually do not have voting rights but whose claims on dividends are paid before those of common-stock owners.

Question 17

Dividend

Answer 17

A distribution of earnings to the stockholders of a corporation.

Question 18

Proxy

Answer 18

A legal form listing issues to be decided at a stockholders’ meeting and enabling stockholders to transfer their voting rights to some other individual or individuals.

Question 19

Board of directors

Answer 19

The top governing body of a corporation, the members of which are elected by the stockholders.

Question 20

Corporate officers

Answer 20

The chairman of the board, president, executive vice presidents, corporate secretary, treasurer and any other top executive appointed by the board of directers.

Question 21

Limited liability

Answer 21

A feature of corporate ownership that limits each owner’s financial liability to the amount of money that he or she has paid for the corporation’s stock.

Question 22

S-corporation

Answer 22

A corporation that is taxed as though it were a partnership.

Question 23

Limited-liability company (LLC)

Answer 23

A form of business ownership that combines the benefits of a corporation and a partnership while avoiding some of the restrictions and disadvantages of those forms of ownership.

Question 24

Not-for-profit corporation

Answer 24

A corporation organized to provide a social, educational, religious, or other service rather than earn a profit.

Question 25

Cooperative

Answer 25

An association of individuals or firms whose purpose is to perform some business function for its members.

Question 26

Joint venture

Answer 26

An agreement between two or more groups to form a business entity in order to achieve a specific goal or to operate for a specific period of time.

Question 27

Syndicate

Answer 27

A temporary association of individuals or firms organized to perform a specific task that requires a large amount of capital.

Question 28

Merger

Answer 28

The purchase of one corporation by another.

Question 29

Hostile takeover

Answer 29

A situation in which the management and board of directors of a firm targeted for acquisition disapprove of the merger.

Question 30

Tender offer

Answer 30

An offer to purchase the stock of a firm targeted for acquisition at a price just high enough to tempt stockholders to sell their shares.

Question 31

Proxy fight

Answer 31

A technique used to gather enough stockholder votes to control a targeted company.