Introduction to Business: Business Formation

A complete set of vocabulary flashcards covering basic forms of business ownership, corporate restructuring, LLCs, and franchising principles.

Sole Proprietorship

A form of business ownership with a single owner who usually actively manages the company and whose business earnings are treated as personal income.

Unlimited Liability

A legal condition where owners are personally liable for claims against their firm and personal assets—such as cash, bank accounts, investments, and homes—can be seized to pay business debts.

Partnership

A voluntary agreement between two or more co-owners of a business for profit.

Corporation

A form of business ownership that is considered a legal entity separate and distinct from its owners, providing limited liability.

Articles of Incorporation

A legal document filed with a state government to establish a corporation's legal existence.

Limited Liability Company (LLC)

A business structure that offers limited liability to its owners (called members) and flexible tax treatment, structured as neither a partnership nor a corporation.

General Partnership

A type of partnership where all partners take an active role in managing the business and have unlimited liability for claims against the firm.

Limited Partnership

A partnership that includes at least one general partner who actively manages the company with unlimited liability, while other partners give up the right to actively manage in exchange for limited liability.

Limited Liability Partnership (LLP)

A partnership structure where all partners have the right to participate in management but are only responsible for their own wrongful acts and debts.

Partnership Agreement

A document that details initial financial contributions, specific duties and responsibilities, profit and loss sharing, settling disagreements, and procedures for the death or withdrawal of a partner.

C Corporation

The most common type of corporation, offering limited liability to all owners (stockholders), with ownership represented by shares of stock.

Institutional Investor

An organization that pools contributions from investors, clients, or depositors and uses these funds to buy stocks and other securities.

Corporate Bylaws

Detailed rules governing how a corporation is organized and conducts its business.

Board of Directors

A body elected by stockholders to represent their interests, oversee operations, and appoint corporate officers such as the CEO.

Acquisition

A corporate restructuring event in which one firm buys another firm.

Merger

A corporate restructuring combination where two formerly independent business entities combine to form a new organization.

Horizontal Merger

A combination of two firms that are in the same industry.

Vertical Merger

A combination of firms at different stages in the production of a good or service.

Conglomerate Merger

A combination of two firms that are in unrelated industries.

Divestiture

The transfer of total or partial ownership of some of a firm's operations to investors or to another company.

S Corporation

A corporation whose earnings are not taxed separately by the Internal Revenue Service, limited to a maximum of $100$ stockholders who must generally be U.S. citizens.

Nonprofit Corporation

A corporation whose earnings are exempt from federal and state income taxes and cannot distribute dividends to members or contribute funds to a political campaign.

Operating Agreement

A document drafted for an LLC, similar to corporate bylaws, establishing management rules and operating procedures for its members.

Franchise

A licensing arrangement to use a name, trademark, products, methods, and other property in exchange for money or other considerations.

Distributorship

A type of franchise where the franchisor makes a product and licenses the franchisees to sell it.

Business Format Franchise

A franchise structure where the franchisee pays for the right to use the name, trademark, and business and production methods of the franchisor.

Franchisor

The party in a franchise arrangement that allows a franchisee to operate using its supplied resources, brand, and methods in exchange for money or considerations.

Franchisee

The party in a franchise arrangement that pays the franchisor for the right to use resources, brands, and methods supplied by the franchisor.

Franchise Agreement

The contractual arrangement between a franchisor and franchisee spelling out the duties and responsibilities of both parties.

Franchise Disclosure Document (FDD)

A detailed description of all aspects of a franchise that the franchisor must provide to the franchisee at least $14$ calendar days before the franchise agreement is signed.

Terms and Conditions (Franchise Agreement)

Franchise agreement terms covering rights to use a franchisor's trademarks, patents, and signage, and any restrictions on those rights.

Fees and Other Payments (Franchise Agreement)

Franchise agreement terms detailing fees that a franchisee must pay for the right to use a franchisor's products and methods.

Training and Support (Franchise Agreement)

Franchise agreement terms specifying training that should be provided by the franchisor to the franchisee.

Specific Operational Requirements (Franchise Agreement)

Franchise agreement terms outlining methods and standards that a franchisee is required to follow.

Conflict Resolution (Franchise Agreement)

Franchise agreement terms describing the manner in which a franchisor and franchisee handle their disputes.

Assigned Territory (Franchise Agreement)

Franchise agreement terms specifying the geographic area in which a franchisee will operate and exclusivity of the rights to that area.

Chick-fil-A vs. KFC Franchise Financial Requirements

Chick-fil-A requires a franchisee fee of $\\n10k$ (total $\\n10k$) and receives $15\%$ of sales and $50\%$ of net profit, while KFC requires a $\\n45k$ franchise fee (total franchisee cost $\\n1.4\text{m}$ - $\\n2.8\text{m}$) and receives $5\%$ of sales.