Corporations

Question 1

Conventional (C) corporation

Answer 1

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

Question 2

General partnership

Answer 2

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

Question 3

Limited partnership

Answer 3

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

Question 4

An owner who invests money in the business but does not have any management responsibility or liability for losses beyond his or her investment.

Answer 4

Limited partner

Question 5

An owner (partner) who has unlimited liability and is active in managing the firm. Every partnership must have at least one general partner.

Answer 5

General partner

Question 6

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 6

Master limited partnership (MLP)

Question 7

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 7

Limited liability partnership (LLP)

Question 8

Looks like a corporation but is taxed like sole proprietorships and partnerships.

Answer 8

S corporation

Question 9

To be an S corporation:

Answer 9

Have no more than 100 shareholders. (All members of a family count as one shareholder.)

Have shareholders that are individuals or estates, and who are citizens of the US

Have only one class of stock.

Derive no more than 25 percent of income from passive sources (rents, royalties, interest).

Question 10

Joins two firms operating in different stages of related businesses.

Answer 10

Vertical Merger

Question 11

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

Answer 11

Horizontal Merger

Question 12

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

Answer 12

Conglomerate Merger

Question 13

Leveraged buyout (LBO)

Answer 13

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.

Question 14

Acquisition

Answer 14

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

Question 15

A franchise agreement

Answer 15

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.