Chapter 5 Forming A Business

Question 1

Sole Proprietorship

Answer 1

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

Question 2

Partnership

Answer 2

A legal form of business with two or more owners.

Question 3

Corporation

Answer 3

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

Question 4

Unlimited Liability

Answer 4

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

Question 5

General Partnership

Answer 5

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

Question 6

Limited Partnership

Answer 6

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

Question 7

General Partner

Answer 7

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

Question 8

Limited Partner

Answer 8

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

Question 9

Limited Liability

Answer 9

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

Question 10

Master Limited Partnership (MLP)

Answer 10

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 11

Limited Liability Partnership (LLP)

Answer 11

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

Question 12

Conventional (C) Corporation

Answer 12

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

Question 13

S Corporation

Answer 13

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

Question 14

Limited Liability Company (LLC)

Answer 14

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

Question 15

Merger

Answer 15

The result of two firms forming one company.

Question 16

Aquisition

Answer 16

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

Question 17

Vertical Merger

Answer 17

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

Question 18

Horizontal Merger

Answer 18

The joining of two firms in the same industry.

Question 19

Conglomerate Merger

Answer 19

The joining of firms in completely unrelated industries.

Question 20

Leveraged Buyout (LBO)

Answer 20

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

Question 21

Franchise Agreement

Answer 21

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 22

Franchisor

Answer 22

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

Question 23

Franchise

Answer 23

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

Question 24

Cooperative

Answer 24

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.