Business Ownership Structures and Governance Concepts

proprietorship

An unincorporated business owned by one individual.

partnership

An unincorporated business owned by two or more persons.

bylaws

A set of rules drawn up by the founders of the corporation that indicates how the company is to be governed; includes procedures for electing directors, rights of stockholders, and how to change the bylaws when necessary.

limited liability partnership (LLP)

A partnership wherein at least one partner is designated as a general partner with unlimited personal financial liability, and the other partners are limited partners whose liability is limited to amounts they invest in the firm.

corporate charter

A document filed with the appropriate department of the state in which a business is incorporated that provides information about the company, including its name, address, directors, and amount of capital stock.

corporation

A legal entity created by a state, separate and distinct from its owners and managers, having unlimited life, easy transferability of ownership, and limited liability.

agency problem

A potential conflict of interest between outside shareholders (owners) and managers who make decisions about how to operate the firm.

proxy votes

Voting power that is assigned to another party, such as another stockholder or institution.

stockholder wealth maximization

The appropriate goal for management decisions; considers the risk and timing associated with expected cash flows to maximize the price of the firm's common stock.

Business ethics

A company's attitude and conduct toward its stakeholders (employees, customers, stockholders, and community). Ethical behavior requires fair and honest treatment of all parties.

Hostile takeovers

The acquisition of a company over the opposition of its management.

exchange rates

The prices at which the currency of one country can be converted into the currencies of other countries.

value

The present, or current, value of the cash flows that an asset is expected to generate in the future.

stakeholders

Those who are associated with a business, including managers, employees, customers, suppliers, creditors, stockholders, and other parties with an interest in the firm's well-being.

hostile takeover

The acquisition of a company over the opposition of its management.

limited liability company (LLC)

Offers the limited personal liability associated with a corporation; however, the company's income is taxed like that of a partnership.

industrial groups

Organizations of companies in different industries with common ownership interests, which include firms necessary to manufacture and sell products; networks of manufacturers, suppliers, marketing organizations, distributors, retailers, and creditors.

S corporation

A corporation with no more than 100 stockholders that elects to be taxed in the same manner as proprietorships and partnerships, so that business income is only taxed once.

Corporate governance

Deals with the set of rules a firm follows when conducting business; these rules identify who is accountable for major financial decisions.

multinational companies

Firms that operate in two or more countries.