Chapter5

Question 1

business owned, and usually managed, by one person

Answer 1

sole proprietorship

Question 2

When two or more people legally agree to become co-owners of a business, the organization

Answer 2

Partnership

Question 3

legal entity with authority to act and have liability apart from its owners

Answer 3

Corporation

Question 4

any debts or damages incurred by the business are your debts and you must pay them, even if it means selling your home, your car, or whatever else you own.

Answer 4

Unlimited liability

Question 5

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

Answer 5

General partnership

Question 6

one or more general partners and one or more limited partners.

Answer 6

Limited partnership

Question 7

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

Answer 7

General partner

Question 8

the limited partners’ liability for the debts of the business is limited to the amount they put into the company; their personal assets are not at risk.

Answer 8

Limited liability

Question 9

acts like a corporation and is traded on the stock exchanges like a corporation, but is taxed like a partnership and thus avoids the corporate income tax

Answer 9

Master limited partnership -MLP

Question 10

limits partners’ risk of losing their personal assets to the outcomes of only their own acts and omissions and those of people under their supervision

Answer 10

Limited liability partnership (LLP)

Question 11

state-chartered legal entity with authority to act and have liability separate from its owners—its stockholders

Answer 11

Conventional corporation

Question 12

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

Answer 12

S corporation

Question 13

similar to an S corporation, but without the special eligibility requirement

Answer 13

Limited liability corporation (LLC)

Question 14

the result of two firms joining to form one company

Answer 14

Merger

Question 15

one company’s purchase of the property and obligations of another company. It is more like buying a house than entering a marriage.

Answer 15

Acquisition

Question 16

joins two firms operating in different stages of related businesses

Answer 16

Vertical merger

Question 17

joins two firms in the same industry and allows them to diversify or expand their products

Answer 17

Horizontal merger

Question 18

unites firms in completely unrelated industries in order to diversify business operations and investments

Answer 18

conglomerate merger

Question 19

an attempt by employees, management, or a group of private investors to buy out the stockholders in a company, primarily by borrowing the necessary funds

Answer 19

Leveraged buyout (LBO)

Question 20

an arrangement whereby someone with a good idea for a business (the franchisor) sells the rights to use the business name and sell a product or service (the franchise) to others (the franchisees) in a given territory.

Answer 20

Franchise agreement

Question 21

owned and controlled by the people who use it—producers, consumers, or workers with similar needs who pool their resources for mutual gain

Answer 21

Cooperative