Foundations Ch. 6 Business Formation – Flashcards
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Sole Proprietorship
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a form of business ownership with a single owner who usually actively manages the company
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Partnership
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a voluntary agreement under which two or more people act as co-owners of a business for profit.
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General Partnership
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a partnership in which all partners can take an active role in managing the business and have unlimited liability for any clams against the firm.
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Corporation
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a form of business ownership in which the business is considered a legal entity that is separate and distinct from its owners.
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Articles of Incorporation
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the document filed with a state government to establish the existence of a new corporation.
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Limited Liability
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when owners are not personally liable for claims against their firm. Owners with limited liability may lose their investment in the company, but their other personal assets are protected.
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Limited Liability Company (LLC)
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a form of business ownership that offers both limited liability to its owners and flexible tax treatment.
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Limited Partnership
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a partnership that includes at least one general partner who actively manages the company and accepts unlimited liability and one limited partner who gives up the right to actively manage the company in exchange for limited liability
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Limited Liability Partnership (LLP)
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a form of partnership in which all partners have the right to participate in management and have limited liability for company debts
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C Corporation
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the most common type of corporation, which is a legal business entity that offers limited liability to all of its owners, who are called stockholders.
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Corporate Bylaws
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the basic rules governing how a corporation is organized and how it conducts its business.
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Stockholders
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an owner of a corporation
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Institutional Investors
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an organization that pools contributions from investors, clients, or depositors and uses these funds to buy stocks and other securities
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Board of Directors
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the individuals who are elected by stockholders of a corporation to represent their interests.
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S Corporation
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a form of corporation that avoids double taxation by having its income taxed as if it were a partnership.
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Statutory Close (or Closed) Corporation
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a corporation with a limited number of owners that operates under simpler, less formal rules than a C corporation
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Nonprofit Corporation
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a corporation that does not seek to earn a profit and differs in several fundamental respects from C corporations.
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Acquisition
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a corporate restructuring in which one firm buys another.
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Merger
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a corporate restructuring that occurs when two formerly independent business entities combine to form a new organization.
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Horizontal Merger
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a combination of two firms that are in the same industry
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Vertical Merger
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a combination of firms at different stages in the production of a good or service.
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Conglomerate Merger
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a combination of two firms that are in unrelated industries.
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Divestiture
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the transfer of total or partial ownership of some of a firm's operations to investors or to another company
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Franchise
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a licensing arrangement under which a franchisor allows franchisees to use its name, trademark, products, business methods, and other property in exchange for monetary payments and other considerations
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Franchisor
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the business entity in a franchise relationship that allows others to operate its business using resources its supplies in exchange for money and other considerations.
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Franchisee
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the party in a franchise relationship that pays for the right to use resources supplied by the franchisor.
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Distributorships
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a type of franchising arrangement in which the franchisor makes a product and licenses the franchisee to sell it
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Business Format Franchises
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a broad franchise agreement in which the franchisee pays for the right to use the name, trademark, and business and production methods of the franchisor.
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Franchise Agreement
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the contractual arrangement between a franchisor and franchisee that spells out the duties and responsibilities of both parties
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Franchise Disclosure Document (FDD)
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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.
