Chapter 4 Forms of Business Ownership

Question 1

In a(n) _______________, the business is established, owned, operated, and often financed by one person.

Answer 1

sole proprietorship

Question 2

A(n) _________ is an association of two or more individuals who agree to operate a business together for profit.

Answer 2

partnership

Question 3

A partnership in which all partners share in the management and profits, and each partner can act on behalf of the firm and has unlimited liability for all its business obligations, is called a(n) _____________________.

Answer 3

general partnership

Question 4

A(n) __________________ is 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.

Answer 4

limited partnership

Question 5

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

Answer 5

general partners

Question 6

_______________ are 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.

Answer 6

limited partners

Question 7

A legal entity with an existence and life separate from its owners, who are not personally liable for the entity’s debts is called a(n) __________. This entity 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.

Answer 7

corporation

Question 8

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

Answer 8

stockholders (or shareholders)

Question 9

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 is called the _____________.

Answer 9

board of directors

Question 10

The __________ is a conventional or basic form of corporate organization.

Answer 10

C corporation

Question 11

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 is called a(n) ________________.

Answer 11

S corporation

Question 12

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

Answer 12

limited liability company (LLC)

Question 13

A legal entity typically formed by people with similar interests, such as suppliers or customers, to reduce costs and gain economic power is called a(n) ___________. This entity 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.

Answer 13

cooperative

Question 14

A group of cooperative members who unite for combined purchasing power is a(n) ______________.

Answer 14

buyer cooperative

Question 15

In a(n) _____________, individual producers join together to compete more effectively with large producers.

Answer 15

seller cooperative

Question 16

In a(n) ___________ two or more companies form an alliance to pursue a specific project, usually for a specified time period.

Answer 16

joint venture

Question 17

A form of business organization based on a business arrangement between a franchisor and the franchisee in a certain geographic area is called ______________-.

Answer 17

franchising

Question 18

In a franchising arrangement, the company that supplies the product or service concept to the franchisee is a(n) ____________.

Answer 18

franchisor

Question 19

In a franchising arrangement, the individual or company that sells the goods or services of the franchisor in a certain geographic area is a(n) _____________.

Answer 19

franchisee

Question 20

A(n) _____________ is 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.

Answer 20

franchise agreement

Question 21

The combination of two or more firms to form one new company is a(n) _________.

Answer 21

merger

Question 22

A(n) _____________ is the purchase of a target company by another corporation or by an investor group typically negotiated with the target company board of directors.

Answer 22

acquisition

Question 23

In a(n) ________, companies at the same stage in the same industry merge. It is done to reduce costs, expand product offerings, or reduce competition.

Answer 23

horizontal merger

Question 24

A merger of companies at different stages in the same industry is a ____________. This type of merger is done to gain control over supplies of resources or to gain access to different markets.

Answer 24

vertical merger

Question 25

A(n) __________ is a merger of companies in unrelated businesses; done to reduce risk.

Answer 25

conglomerate merger

Question 26

A corporate takeover financed by large amounts of borrowed money that can be started by outside investors or the corporation’s management is called a(n) _____________.

Answer 26

leveraged buyout (LBO)