Key Terms/ Concepts

Question 1

What is a sole proprietorship?

Answer 1

A business owned and operated by a single individual with no formalities or legal requirements to establish.

Question 2

What is a trade name/DBA?

Answer 2

An official name under which a company conducts business, differing from the company’s legal name registered with the government.

Question 3

Define franchise.

Answer 3

A business model where a franchisor grants a franchisee rights to operate a business using the franchisor’s brand, products, and operational methods.

Question 4

Who is a franchisor?

Answer 4

The company or individual that owns the overall rights and trademarks of the business and grants these rights to franchisees.

Question 5

What is a franchisee?

Answer 5

The individual or entity that purchases the right to operate a franchise and invests in it according to the franchisor’s guidelines.

Question 6

What does a franchise agreement entail?

Answer 6

A legal contract outlining the terms and conditions of the franchise relationship, including rights, responsibilities, fees, duration, and operational guidelines.

Question 7

Define joint venture.

Answer 7

A business arrangement where two or more parties come together to undertake a specific project or business activity, sharing assets, risks, and profits.

Question 8

What is a nonprofit (unincorporated association)?

Answer 8

An entity formed for purposes other than generating profit, focusing on furthering a social cause or mission.

Question 10

What is limited liability?

Answer 10

Limited liability refers to the legal protection provided to owners or shareholders of a company, where their personal assets are protected from business debts and obligations. This means that the owners’ liability is limited to the amount they have invested in the business.

Question 11

What is joint and several liability?

Answer 11

Joint and several liability is a legal concept where multiple parties can be held independently or collectively responsible for the entire amount of a debt or liability. Each party is liable for the full amount, regardless of their individual share.

Question 12

What is a general partnership?

Answer 12

A general partnership is a business arrangement where two or more individuals agree to operate a business together and share profits, losses, and management responsibilities. All partners have equal rights and liabilities.

Question 13

What is a pass-through entity?

Answer 13

A pass-through entity is a business structure where the income, losses, and tax obligations ‘pass through’ to the individual owners’ personal tax returns. The business itself does not pay income tax at the corporate level.

Question 14

What is per capita voting?

Answer 14

Per capita voting is when each member or shareholder has one vote, regardless of the amount of ownership or shares they hold.

Question 15

What is pro rata voting?

Answer 15

Pro rata voting is when voting rights are based on the proportion of ownership or shares held by each member or shareholder.

Question 16

What is a deadlock?

Answer 16

A deadlock occurs when partners, members, or shareholders in a business cannot agree on a decision, leading to an impasse that prevents the business from moving forward.

Question 17

What is dissociation?

Answer 17

Dissociation refers to the process by which a partner leaves or is removed from a partnership, either voluntarily or involuntarily.

Question 18

What is dissolution?

Answer 18

Dissolution is the formal process of ending or dissolving a business entity, often followed by winding up the business’s affairs.

Question 19

What is winding up?

Answer 19

Winding up is the process of settling the affairs of a dissolved business entity, including paying off debts, distributing remaining assets, and completing any final transactions.

Question 20

What is a limited partnership?

Answer 20

A limited partnership consists of at least one general partner who manages the business and assumes unlimited liability, and one or more limited partners who contribute capital and have limited liability.

Question 21

What is a limited liability partnership?

Answer 21

A limited liability partnership is a partnership where all partners have limited liability protection, shielding them from personal liability for certain partnership obligations.

Question 22

What is an LLC?

Answer 22

A business structure that combines the limited liability protection of a corporation with the tax efficiencies and operational flexibility of a partnership.

Question 23

Who is a member in an LLC?

Answer 23

An owner of an LLC. Members can be individuals, corporations, other LLCs, or foreign entities.

Question 24

What is a manager in the context of an LLC?

Answer 24

An individual or entity designated to manage an LLC, especially in a manager-managed LLC.

Question 25

What is a personal guaranty?

Answer 25

A legal commitment by an individual to repay a debt or obligation if the primary borrower defaults.

Question 26

What constitutes an improper distribution?

Answer 26

The distribution of assets or profits to members or shareholders that violates the terms of the business's governing documents or applicable laws.

Question 27

What is a joint venture?

Answer 27

A business arrangement where two or more parties collaborate on a specific project or business activity, sharing resources, risks, and profits.

Question 28

What is a cooperative?

Answer 28

A business organization owned and operated by a group of individuals for their mutual benefit. Cooperatives are usually formed to provide goods or services to their members at reduced costs.

Question 29

What is a privately held corporation?

Answer 29

Shares are not publicly traded and are held by a small group of investors.

Question 30

What is a publicly held corporation?

Answer 30

Shares are traded on public stock exchanges and are available to the general public.

Question 31

What does domestic mean in a corporate context?

Answer 31

Operating and incorporated in the state of its formation.

Question 32

What does foreign mean in a corporate context?

Answer 32

Incorporated in one state but operating in another.

Question 33

What is a professional corporation?

Answer 33

A corporation formed by professionals such as doctors, lawyers, and accountants to provide their services.

Question 34

What is a benefit corporation?

Answer 34

A type of corporation committed to creating public benefit and operating in a sustainable manner.

Question 35

What is a C corporation?

Answer 35

A standard corporation subject to double taxation, where profits are taxed at the corporate level and again as dividends to shareholders.

Question 36

What is an S corporation?

Answer 36

A corporation that passes income directly to shareholders, avoiding double taxation.

Question 37

What is the difference between a shareholder, director, and officer?

Answer 37

Shareholder: Owner of shares in a corporation. Director: Elected by shareholders to oversee the corporation's management. Officer: Appointed by directors to manage the day-to-day operations.

Question 38

What is a merger?

Answer 38

Two companies combine, with one surviving.

Question 39

What is a consolidation?

Answer 39

Two companies combine to form a new entity.

Question 40

What is conversion in a corporate context?

Answer 40

Changing the business form (e.g., from a partnership to a corporation).

Question 41

What is a conglomerate?

Answer 41

A corporation composed of diverse businesses across various industries.

Question 42

What does ultra vires mean?

Answer 42

Acts performed beyond the scope of a corporation's powers as defined by its charter.

Question 43

What is a stock subscription?

Answer 43

Agreement to purchase a specific number of shares before they are issued.

Question 44

What are the types of corporate finance instruments?

Answer 44

Common Stock: Ownership shares with voting rights. Preferred Stock: Ownership shares with fixed dividends but typically no voting rights. Debt: Loans or bonds that must be repaid.

Question 45

What is insurable interest?

Answer 45

The legitimate interest a person has in the continued existence or well-being of the insured property, person, or event. It is a fundamental principle in insurance, preventing people from taking out policies on things they have no stake in.

Question 46

What is a wager?

Answer 46

A bet or gamble where the outcome depends on uncertain events, such as placing a bet on the outcome of a sports game or other random event.

Question 47

What is an application in insurance?

Answer 47

The process where the prospective policyholder provides information to the insurance company to assess the risk and determine coverage terms.

Question 48

What is a binder in insurance?

Answer 48

A temporary insurance agreement that provides coverage until a formal policy is issued.

Question 49

What is a policy in insurance?

Answer 49

The official contract between the insurer and the insured, outlining the terms, conditions, and coverage provided.

Question 50

What is a premium?

Answer 50

The amount the policyholder pays for insurance coverage, typically on a monthly or annual basis.

Question 51

What is a deductible?

Answer 51

The amount the insured must pay out-of-pocket before the insurer pays for a covered loss.

Question 52

What are proceeds in insurance?

Answer 52

The money paid out by the insurer when a claim is made and covered under the policy.

Question 53

What is key-person insurance?

Answer 53

A type of life insurance where the beneficiary is the business rather than an individual, aimed at protecting the company from the loss of a crucial employee.

Question 54

What is life insurance?

Answer 54

A policy that pays out a sum of money to designated beneficiaries upon the insured's death.

Question 55

What is a bad faith action?

Answer 55

A legal claim that an insured person can make against an insurer for failing to act in good faith and deal fairly. Examples include unwarranted denial of coverage or delays in processing claims.