chapter four

Question 1

sole proprietorship

Answer 1

a business that is owned (and usually operated) by one person

Question 2

unlimited liability

Answer 2

a legal concept that holds a business owner personally responsible for all the debts of the business

Question 3

partnership

Answer 3

a voluntary association of two or more persons to act as co-owners of a business for profit

Question 4

general partner

Answer 4

a person who assumes full or shared responsibility for operating a business

Question 5

limited partner

Answer 5

a person who invests money in a business but has no management responsibility or liability for losses beyond the amount he or she invested in the partnership

Question 6

corporation

Answer 6

an artificial person created by law with most of the legal rights of a real person, including the rights to start and operate a business, to buy or sell property, to borrow money, to sue or be sued, and to enter into binding contracts

Question 7

stock

Answer 7

the shares of ownership of a corporation

Question 8

stockholders

Answer 8

a person who owns a corporation’s stock

Question 9

closed corporation

Answer 9

a corporation whose stock is owned by relatively few people and is not sold to the general public

Question 10

open corporation

Answer 10

a corporation whose stock can be bought and sold by any individual

Question 11

domestic corporation

Answer 11

a corporation in the state in which it is incorporated

Question 12

foreign corporation

Answer 12

a corporation in any state in which it does business except the one in which it is incorporated

Question 13

alien corporation

Answer 13

a corporation chartered by a foreign government and conducting business in the United States

Question 14

common stock

Answer 14

stock owned by individuals or firms who may vote on corporate matters but whose claims on profits and assets are subordinate to the claims of others

Question 15

preferred stock

Answer 15

stock owned by individuals or firms who usually do not have voting rights but whose claims on dividends are paid before those of common-stock owners

Question 16

dividend

Answer 16

a distribution of earnings to the stockholders of a corporation

Question 17

proxy

Answer 17

a legal form listing issues to be decided at a stockholders’ meeting and enabling stockholders to transfer their voting rights to some other individual or individuals

Question 18

board of directors

Answer 18

the top governing body of a corporation, the members of which are elected by the stockholders

Question 19

corporate officers

Answer 19

the chairman of the board, president, executive vice presidents, corporate secretary, treasurer, and any other top executive appointed by the board of directors

Question 20

limited liability

Answer 20

a feature of corporate ownership that limits each owner’s financial liability to the amount of money that he or she has paid for the corporation’s stock

Question 21

S corporation

Answer 21

a corporation that is taxed as though it were a partnership

Question 22

limited-liability corporation (LLC)

Answer 22

a form of business ownership that combines the benefits of a corporation and a partnership while avoiding some of the restrictions and disadvantages of those forms of ownership

Question 23

not-for-profit corporation

Answer 23

a corporation organized to provide a social, educational, religious, or other service rather than to earn a profit

Question 24

joint venture

Answer 24

an agreement between two or more groups to form a business entity in order to achieve a specific goal to operate for a specific period of time

Question 25

syndicate

Answer 25

a temporary association of individuals or firms organized to perform a specific task that requires a large amount of capital

Question 26

merger

Answer 26

the combining of two corporations or other business entities to form one business

Question 27

leveraged buyout

Answer 27

a financing method that uses borrowed money to pay for the company being taken over

Question 28

hostile takeover

Answer 28

a situation in which the management and board of directors of a firm targeted for acquisition disapprove of the merger