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An unincorporated business owned by one individual.



An unincorporated business owned by two or more persons.



A legal entity created by a state, separate and distinct from its owners and managers, having unlimited life, easy transferability of ownership, and limited liability.



A document filed with the secretary of the state in which a business is incorporated that provides information about the company, including its name, address, directors, and amount of capital stock.

corporate charter


A set of rules drawn up by the founders of the corporation that indicate how the company is to be governed; includes procedures for electing directors, the rights of the stockholders, and how to change the bylaws when necessary.



A partnership wherein one (or more) partner is designated the general partner(s) with unlimited personal financial liability, and the other partners are limited partners whose liability is limited to amounts they invested in the firm.

limited liability partnership (LLP)


A business structure that offers the limited personal liability associated with a corporation, but the company's income is taxed like a partnership.

limited liability company (LLC)


A corporation with no more than 100 stockholders that elects to be taxed the same as proprietorships and partnerships so that business income is taxed only once.

S corporation


The appropriate goal for management decisions; considers the risk and timing associated with expected cash flows to maximize the price of the firm's common stock.

stockholder wealth maximization


Decisions about how much and what types of debt and equity should be used to finance the firm.

capital structure decisions


Decisions as to what types of assets should be purchased to help generate future cash flows.

capital budgeting decisions


Decisions concerning how much of current earnings to pay out as dividends rather than retain the reinvestment in the firm.

dividend policy decisions


The present, or current, value of the cash flows an asset is expected to generate in the future.



Maximization of the firm's net income each year.

profit maximization


Net income divided by the number of shares of common stock outstanding.

earnings per share (EPS)


A potential conflict of interest between outside shareholders (owners) and managers who make decisions about how to operate the firm.

agency problem


A type of incentive plan in which managers are awarded shares of stock on the basis of the firm's performance over given intervals with respect to earnings per share or other measures.

performance shares


A type of incentive plan that allows managers to purchase stock at some future time at a given price.

executive stock options


Stock is granted to employees based on the firm's performance, but the stock is restricted in the sense that an employee is not vested-- that is, does not have the right to ownership of the stock-- until some period in the future.

restricted stock grants


This acquisition of a company over the opposition of its management.

hostile takeover


Those who are associated with a business; include managers, employees, customers, suppliers, creditors, stockholders, and other parties with an interest in the firm.



A company's attitude and conduct toward its stakeholders-- employees, customers, stockholders, and so forth; requires fair and honest treatment of all parties.

business ethics


The "set of rules" that a firm follows when conducting business; these rules identify who is accountable for major financial decisions.

corporate governance


Voting power that is assigned to another party, such as another stockholder or institution.

proxy votes


Organizations that consist of companies in different industries with common ownership interests, which include firms necessary to manufacture and sell products-- a network of manufacturers, suppliers, marketing organizations, distributors, retailers, and creditors.

industrial groups


A firm that operates in two or more countries.

multinational corporation


The prices at which the currency can by converted into the currency of another country.

exchange rates


A tax that requires a higher percentage payment on higher incomes. The personal income tax in the United States is progressive.

progressive tax


Gross income minus exemptions and allowable deductions as set forth in the Tax Code.

taxable income


The percent tax applicable to the last unit (dollar) of income.

marginal tax rate