Chapter 5 (Forming Business)

Question 1

Sole proprietorship

Answer 1

A business 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 separate from its owners

Question 4

Unlimited liability

Answer 4

The responsibility of business
owners for all 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 management
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 assets to only
their own acts and omissions and to the 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 separate from its owners (its stockholders)

Question 13

Owners/Stock holders

Answer 13

Elect board of directors

Question 14

Board of directors

Answer 14

Hire officers

Question 15

Officers

Answer 15

Set corporate objectives and select managers

Question 16

Managers

Answer 16

Supervise employees

Question 17

S Corporations

Answer 17

A unique government creation that looks like a corporation
but is taxed like sole proprietorship’s and partnerships

Question 18

S Corporations Requirements

Answer 18

• 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

Question 19

Limited Liability Companies (LLCs)

Answer 19

LLCs are similar to an S corporation but without the special
eligibility requirements.

Question 20

Merger

Answer 20

The result of two firms forming one company

Question 21

Acquisition

Answer 21

One company’s purchase of the property and
obligations of another company

Question 22

Vertical merger

Answer 22

The joining of two companies in different
stages of related businesses

Question 23

Horizontal merger

Answer 23

The joining of two firms in the same
industry

Question 24

Conglomerate merger

Answer 24

The joining of firms in completely
unrelated industries

Question 25

Leveraged buyout (LBO)

Answer 25

An attempt by employees,
management, or a group of private investors to buy out the
stockholders in a company.

Question 26

Franchise agreement

Answer 26

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

Question 27

Cooperative (Co-Op)

Answer 27

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