Chapter 5- How To Form A Business

Question 1

Sole proprietorship

Answer 1

A business owned and managed by one person.

Question 2

Partnership

Answer 2

A legal business with more than 2 owners.

Question 3

Corporation

Answer 3

A legal entity with authority to take action and be liable separate from the owners.

Question 4

Unlimited liability

Answer 4

Taking full responsibility for the business and its losses as the owner.

Question 5

General partnership

Answer 5

All owners share equal responsibility

Question 6

Limited partnership

Answer 6

Some general partners and some limited partners.

Question 7

General partner

Answer 7

One person who’s liability is unlimited and is involved in managing.

Question 8

Limited partner

Answer 8

Investor but doesn’t hold any debt liability besides investment and no manager responsibilities.

Question 9

Limited liability

Answer 9

The business owners losses are only up to the amount they invest limited partners and stockholders limited liability.

Question 10

Master limited partnership MLP

Answer 10

Acts like a corporation but taxed like a partnership which avoids the corporate income tax. Traded in stock exchange.

Question 11

Limited liability partnership LLP

Answer 11

Limits partners risk of losing personal assets to just acts and omissions of themselves and ones under their supervision.

Question 12

Conventional C corporation

Answer 12

State chartered entity w/ authority to act and have liability separate from its owners.

Question 13

Limited liability company LLC

Answer 13

A company similar an S corporation w/o the special eligibility requirements.

Question 14

Merger

Answer 14

Two firms joining one company

Question 15

Acquisition

Answer 15

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

Question 16

Vertical merger

Answer 16

Two company’s joining but involved in different stages of related business.
Ex. Soft drink and artificial sweetener

Question 17

Horizontal merger

Answer 17

Joining if two firms in the same industry.

Question 18

Conglomerate merger

Answer 18

Joining firms in completely unrelated industries.

Ex. Soft drink and snack food company

Question 19

Levered buyout LBO

Answer 19

Employees, managers, or private investors attempting to buyout the stockholders by borrowing.

Question 20

Franchise agreement

Answer 20

An agreement where someone w a good idea for the business buys the rights to use the business name and sell a product or service to others in a area.
Ex. McDonalds and 7-11

Question 21

Franchisor

Answer 21

A company that develops a product concept and sells others the rights to make and sell the products.

Question 22

Franchise

Answer 22

The right to use a specific business name and sell its product in a given territory.

Question 23

Franchisee

Answer 23

A person who buys a franchise

Question 24

Cooperative

Answer 24

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.