Chapter 1 (2)

board of directors

group elected by the firm’s stockholders and typically responsible for approving strategic goals and plans, setting general policy, guiding corporate affairs, and approving major expenditures

president or chief executive officer (CEO)

corporate official responsible for managing the firm’s day-to-day operations and carrying out the policies established by the board of directors

double taxation

a situation facing corporations in which income from the business is taxed twice – once at the business level and once at the individual level when cash is distributed to shareholders (dividends)

ordinary income

income earned by a business through the sale of goods or services

capital gain

income earned by selling an asset for more than it costs

agency costs

the costs that shareholders bear due to managers’ pursuit of their own interests

corporate governance

the rules, processes, and laws by which companies are operated, controlled, and regulated