Chapter 5: How to Form a Business

Flashcards based on Chapter 5 lecture notes, focusing on vocabulary related to business forms and structures.

Sole Proprietorship

A business owned, and usually managed, by one person.

Partnership

A legal form of business with two or more owners.

Corporation

A legal entity with authority to act and have liability separate from its owners.

Unlimited liability

The responsibility of business owners for all of the debts of the business.

General partnership

A partnership in which all owners share in operating the business and in assuming liability for the business’s debts.

Limited partnership

A partnership with one or more general partners and one or more limited partners.

General partner

An owner (partner) who has unlimited liability and is active in managing the firm.

Limited partner

An owner who invests money in the business but does not have any management responsibility or liability for losses beyond the investment.

Limited liability

The responsibility of a business’s owners for losses only up to the amount they invest.

Conventional (C) Corporation

A state-chartered legal entity with authority to act and have liability separate from its owners (its stockholders).

Alien corporations

Corporations that do business in the United States but are chartered in another country.

Domestic corporations

Corporations that do business in the state in which they are chartered.

Foreign corporations

Corporations that do business in one state but are chartered in another.

Closed (private) corporations

Corporations that have stock held by a few people and not available to the general public.

Open (public) corporations

Corporations that sell stock to the general public.

Nonprofit corporations

Corporations that don't seek personal profit for their owners.

Multinational corporations

Corporations that operate in several countries.

Merger

The result of two firms forming one company.

Acquisition

One company’s purchase of the property and obligations of another company.

Vertical merger

The joining of two companies in different stages of related businesses.

Horizontal merger

The joining of two firms in the same industry.

Conglomerate merger

The joining of firms in completely unrelated industries.

Leveraged buyout (LBO)

An attempt by employees, management, or a group of private investors to buy out the stockholders in a company.

Franchise

A system where individuals or companies (franchisees) operate a business under the name and guidance of an established company (franchisor).

Cooperatives

Businesses owned and controlled by the people who use its services