FIN 3320 - Business Organization

Dr. Bobby Merriman Business Organization Finance 3320

business

producing and selling products or providing and selling services to customers for a profit (also known as a company, firm, or enterprise)

business structure

the legal form of the business which determines the ownership, control, liability, and taxation of the business

sole proprietorship

a business owned by one person

entrepreneur

a person who initiates, organizes, and operates a business

partnership

a business owned by two or more individuals

partner

an individual who shares ownership in a partnership

general partnership (GP)

a type of partnership where each partner is responsible for the business's debts and obligations and all partners have unlimited liability

limited partnership (LP)

a type of partnership where the general partners manager the business and have unlimited liability but the limited partners only invest in the business without running it and have limited liability

limited liability partnership (LLP)

a type of partnership where all partners have limited liability and can participate in the management of the business

corporation

a business created as a distinct legal entity owned by one or more individuals

shareholder

an individual who is one of the owners of a corporation and therefore shares in both the assets and profits of the business

C corporation

a type of corporation subject to double taxation

S corporation

a type of corporation which applies and qualifies for pass through taxation

non-profit corporation

a type of corporation which is tax exempt

limited liability company (LLC)

a mixture of a partnership and a corporation which uses pass through taxes like a partnership but has limited liability like a corporation

complete ownership

owner makes all business decisions and has complete control over the day-to-day operations of the business

separate ownership

owners (entitled to the profit of the business) are separate from managers who make all business decisions and run the day-to-day operations of the business

unlimited liability

owner is completely responsible for all debts and obligations of the business

limited liability

owner is not responsible for all debts and obligations of the business; the most they can lose is their original investment

pass through taxation

profits of the business are taxed once at the owner's personal income tax rate

double taxation

profits of the business are taxed twice; first the company's profits are taxed and a second time after profits have been distributed to owners

raising capital

the process of obtaining cash from investorsto fund business activities and growth

filing requirement

the legal obligation to submit specific documents and forms to regulatory authorities (such as the IRS or SEC)

business hierarchy

the arrangement of job roles and responsibilities within a business

chief executive officer (CEO)

the highest-ranking person in a company responsible for making major company decisions and managing overall operations and resources of a company

chief financial officer (CFO)

the third in command in a company, responsible for financial actions and decisions including tracking cash flow, accounting, treasury, credit, legal, capital budgeting, investor relation and other financial departments

chief operating officer (COO)

the second in command in a company, responsible for the day-to-day administration and operation of the business including marketing, production, human resources, and other operating departments

board of directors

a group of individuals elected to represent owners and responsible to ensure top managers (CEO, COO, and CFO) are making business decisions in the best interest of the owners

corporate governance

the system of rules, practices, and processes by which a company is directed and controlled

agency theory

a framwork used to examine how to motivate an agent to act on behalf of a principal when the agent's interests' conflict with the interests of the principal

principal-agent relation

a relation in which the principal delegates decision making authority to the agent and the agent performs work on behalf of the principal

self interest

actions that individuals take which they believe will benefit themselves

conflict of interest

when an individual has multiple interests, and serving one interest could potentially work against another

agency problem

a conflict of interest that arises in a principal-agent relationship (a relationship where one person is expected to act in the best interests of another person)

agency cost

costs incurred by the principal to remove the conflict of interest and ensure the agent acts in their best interest

compensation package

the total combination of salary, benefits, bonuses, and other financial and non-financial rewards offered to an employee in exchange for their work and performance (usually used in the context of executive or management compensation)

corporate control

the mechanisms, processes, and activities through which the power and authority to manage a corporation are exercised and contested, including various strategies and tactics used to acquire, defend, and maintain control over a company