Chapter 5 Forming a Business

Question 1

Conventional (C) Corporation

Answer 1

A state-chartered legal entity with authority to act and have liability seperate from it’s owners.

Question 1

Aquisition

Answer 1

One company’s purchase of the propety and obligations to another company.

Question 1

Conglomerate Merger

Answer 1

The joining of firms in completely unrelated industries.

Question 1

Cooperative

Answer 1

A business owned and controlled by the people who use it- producers, consumers, or workers with similar needs who pool their resources for mutual gain.

Question 3

Corporation

Answer 3

A legal entity with authority to act and have liability apart from it’s owners.

Question 4

Franchise

Answer 4

The right to use a specific business’s name and sell it’s products or services in a given territory.

Question 5

Franchise Agreement

Answer 5

An arrangment whereby someone with a good idea for a business sells rights to use the business name and sell a product or service to others in a given territory.

Question 5

Franchisor

Answer 5

A company that develops a product concept and sells others the rights to make and sell the products.

Question 7

General Partnership

Answer 7

A partnership in which all owners share in operating the business and in assuming liability for the business’s debts.

Question 7

General Partner

Answer 7

An owner (partner) who has unlimited liability and is active in managing the firm.

Question 8

Horizontal Merger

Answer 8

The joining of two firms in the same industry.

Question 9

Leveraged Buyout (LBO)

Answer 9

An attempt by employees, management, or a group of investors to purchase an organization primarily through borrowing.

Question 10

Limited Liability

Answer 10

The responsibility of a business’s owners for losses only up to the amount they invest; limited partners and shareholders have limited liability.

Question 13

Limited Liability Partnership (LLP)

Answer 13

A partnership that limits partners’ risk of losing their personal assests to only their own acts and omissions of people under their supervision.

Question 14

Limited Partner

Answer 14

An owner who invests money in the business but does not have any managment responsibility or liability for losses beyond the investment.

Question 15

Limited Partnership

Answer 15

A partnership with one or more general partners and one or more limited partners.

Question 16

Master Limited Partnership (MLP)

Answer 16

A partnership that looks much like a corporation (in that it acts like a corporation and is traded on a stock exchange) but is taxed like a partnership and thus avoids the corporate income tax.

Question 17

Merger

Answer 17

The result of two firms forming one company.

Question 18

Limited Liability Company (LLC)

Answer 18

A company similar to an S corporation but without the special eligibility requirements.

Question 19

Partnership

Answer 19

A legal form of business with two or more owners.

Question 20

S Corporation

Answer 20

A unique government creation that looks like a corporation but is taxed like sole proprietorships and partnerships.

Question 22

Sole Proprietorship

Answer 22

A business that is owned and usually managed, by one person.

Question 23

Unlimited Liability

Answer 23

The responsibility of business owners for all of the debts of the business.

Question 24

Vertical Merger

Answer 24

The joining of two companies involved in different stages of related business.