Chapter 5 (Forming Business) Flashcards
Starting a business
Sole proprietorship
A business owned, and usually
managed, by one person
Partnership
A legal form of business with two or more
owners
Corporation
A legal entity with authority to act and have
liability separate from its owners
Unlimited liability
The responsibility of business
owners for all debts of the business
General partnership
A partnership in which all owners
share in operating the business and in assuming liability
for the business’s debts
Limited partnership
A partnership with one or more
general partners and one or more limited partners
General partner
An
owner (partner) who has
unlimited liability and is
active in managing the firm
Limited partner
An
owner who invests money
in the business but does
not have any management
responsibility or liability for
losses beyond the
investment
Limited liability
The responsibility of a
business’s owners for
losses only up to the
amount they invest;
limited partners and
shareholders have
limited liability
Master limited partnership (MLP)
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
Limited liability partnership (LLP)
A partnership that
limits partners’ risk of losing their personal assets to only
their own acts and omissions and to the acts and
omissions of people under their supervision
Conventional (C) Corporation
A state-chartered legal entity with authority to act and have
liability separate from its owners (its stockholders)
Owners/Stock holders
Elect board of directors
Board of directors
Hire officers
Officers
Set corporate objectives and select managers
Managers
Supervise employees
S Corporations
A unique government creation that looks like a corporation
but is taxed like sole proprietorship’s and partnerships
S Corporations Requirements
- Have no more than 100 shareholders
- Have shareholders that are individuals or estates, and who (as
individuals) are citizens or permanent residents of the U.S. - Have only one class of stock
- Derive no more than 25% of income from passive sources
Limited Liability Companies (LLCs)
LLCs are similar to an S corporation but without the special
eligibility requirements.
Merger
The result of two firms forming one company
Acquisition
One company’s purchase of the property and
obligations of another company
Vertical merger
The joining of two companies in different
stages of related businesses
Horizontal merger
The joining of two firms in the same
industry
Conglomerate merger
The joining of firms in completely
unrelated industries
Leveraged buyout (LBO)
An attempt by employees,
management, or a group of private investors to buy out the
stockholders in a company.
Franchise agreement
An arrangement whereby
someone with a good idea for a business (franchisor) sells
the rights to use the business name and sell a product or
service (franchise) to others (franchisees) in a given
territory
Cooperative (Co-Op)
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
