25 terms

Ch. 5 Understanding Business: How to Form a Business

Sole Proprietorship
A business that is owned, and usually managed,by one person
A legal form of business with two or more partners.
A legal entity with authority to act and have liability apart from its owners.
Unlimited Liability
The responsibility of business owners for the debts of a business.
General Partnership
A partnership in which all owners share in operating the business and 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; limited partners and shareholders have limited liability.
Master Limited Partnership (MLP)
A partnership that looks much like a corporation (in that it acts like a corporation and is traded on a stock exchange) but is taxed like a partnership and thus avoids the corporate income tax.
Limited Liability Partnership (LLP)
A partnership that limits partners' risk of losing their personal assets to only their own acts and omissions and to the acts and omissions of people under their supervision.
Conventional (C) Corporation
A state-chartered legal entity with authority to act and have liability separate from its owners.
S Corporation
A unique government creation that looks like a corporation but is taxed like sole proprietorships and partnerships.
Reason formed: to avoid double taxation. Company must have no more than 100 shareholders, shareholders are individuals or estates, US permanent residents, have only one class of stock
Limited Liability Companies (LLC)
Similar to an S corporation without the special eligibility requirements.
The result of two firms forming one company.
One company's purchase of the property and obligations of another company.
Vertical Merger
The joining of two companies involved in different stages of related businesses. ie. soft drink company and artificial sweetener maker.
Horizontal Merger
The joining of two firms in the same industry. ie. soft drink company and a mineral water company.
Conglomerate Merger
The joining of firms in completely unrelated industries.
Leveraged Buy Out (LBO)
An attempt by employees, management, or a group of investors to purchase an organization primarily through borrowing.
Franchise Agreement
An arrangement whereby someone with a good idea for a business sells the rights to use the business name and sell a product or service to others in a given territory.
A company that develops a product concept and sells others the rights to make and sell the products.
The right to use a specific business's name and sell its products or services in a given territory.
A person who buys a franchise.
A business owned and controlled by the people who use it - producers, consumers, or workers with similar needs who pool their resources for mutual gain.