Chapter 7

Question 1

Closely held corporation

Answer 1

A corporation in which a small number of individuals own the voting stock; the stock is traded infrequently.

Question 2

public corporation

Answer 2

Corporation listed on a major stock exchange, such as the New York Stock Exchange or the NASDAQ, in which owners can sell their shares at almost a moment’s notice.

Question 3

C corporation

Answer 3

A legal entity that, in the eyes of the law, is separate from its owners.

Question 4

Subchapter S corporation

Answer 4

A form of business organization that combines the advantages of a partnership and C corporation.

Question 5

Double taxation

Answer 5

When a corporation is taxed on its net income and, when the firm distributes that income to shareholders as dividends, those individuals pay personal taxes on their dividend income.

Question 6

LLC

Answer 6

A form of business organization that combines the limited liability advantage of the corporation with the tax advantages of a partnership.

Question 7

Liquidity

Answer 7

A firm’s ability to meet its short-term financial obligations.

Question 8

noncompete agreement

Answer 8

An agreement that prevents an individual from competing against a former employer for a specific period.

Question 9

non disclosure agreement

Answer 9

An agreement that binds an employee or another party (such as a supplier) to not disclose a company’s trade secrets.

Question 10

piercing the corporate veil

Answer 10

The chain of events that occurs if the owners of a corporation fail to file their annual paperwork, neglect to pay their annual fees, or commit fraud. These conditions may result in the court ignoring the fact that the corporation is an entity and the owners could find themselves being held liable personally for the corporation’s actions.

Question 11

general partnership

Answer 11

A form of business organization in which two or more people pool their skills, abilities, and resources to run a business.

Question 12

limited partnership

Answer 12

General partners are liable for the debts and obligations of the partnership while limited partners are liable only up to the amount of their investment. Limited partners may not exercise any significant control over the organization without jeopardizing their limited liability status.