Business Principals Chapter 5

Sole Proprietorship

A business owned and managed by one person who has unlimited liability.

Sole Proprietorship Advantages

Easy to start, owner keeps control and profits, pride of ownership, and possible tax benefits.

Sole Proprietorship Disadvantages

Limited money, unlimited liability, difficulty attracting employees, and lack of permanence.

Pass-Through Entity

A business where profits and losses pass directly to the owners' personal tax returns and are taxed once.

Partnership

A business owned by two or more people who share profits, responsibilities, and debts.

General Partner (GP)

A partner who manages the business and has unlimited liability.

Limited Partner (LP)

A partner who has limited liability and usually does not manage the business.

General Partnership (GP)

A partnership where partners manage the business and have unlimited liability.

Limited Partnership (LP)

A partnership with at least one general partner and one limited partner.

Limited Liability Partnership (LLP)

A partnership where all partners have limited liability and can participate in management.

Corporation

A business that is a separate legal entity from its owners.

Articles of Incorporation

Documents that legally create a corporation.

Limited Liability

Owners are not personally responsible for most business debts.

LLC

A business structure that provides limited liability and flexible tax treatment.

Stockholders/Shareholders

The owners of a corporation.

Institutional Investor

An organization that pools money from investors and invests it in stocks and securities.

Board of Directors

People elected by shareholders to represent their interests.

Private Equity Fund

A pool of investor money used to buy, improve, and sell private companies for profit.

IPO (Initial Public Offering)

When a private company first sells its stock to the public.

S Corporation

A corporation where profits and losses pass through to shareholders for taxes.

Public Corporation

A company whose stock is available for the general public to buy.

Merger

When two companies combine to form one organization.

Acquisition

When one company buys another company.

Divestiture

When a company sells part or all of one of its operations.

Spin-Off

When a company separates part of itself into a new business.