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MGTA01H3 (583)
Chapter 4

Chapter 4 – Understanding Legal Forms of Business Organization

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Department
Management (MGT)
Course
MGTA01H3
Professor
Bill Mc Conkey
Semester
Fall

Description
Chapter 4 – Understanding Legal Forms of Business Organization CHAPTER 4 Understanding Legal Forms of Business Organization KEY TERMS Acquisition – One firm buys another firm and absorbs it into its operations. Board of directors – A group of individuals elected by a board’s shareholders and charged with overseeing and taking legal responsibility for, the corporations actions. Chief executive officer (CEO) – The person responsible for the firm’s overall performance. Conglomerate merger – A merger of two firms in completely unrelated businesses. Corporation – A business that is a separate legal entity that is liable for its own debts and whose owners’ liability is limited to their investment. Divestiture – Occurs when a company sells art of its existing business operations to another company. Friendly takeover – An acquisition in which the management of an acquired company welcomes the firm’s buyout by another company. General partner – Partners who are actively involved in managing the firm and have unlimited liability. General partnership – A type of partnership in which all partners are jointly liable for the obligations of the business. Horizontal merger – A merger of two firms that have previously been direct competitors in the same industry. Hostile takeover – An acquisition in which the management of an acquired company fights the firm’s buyout by another company. Initial public offering (IPO) – Sale of shares in a company for the first time to the general investing public. Inside directors – Members of a corporation’s board of directors who are also full-time employees of the corporation. Limited liability – The liability of investors is limited to their personal investment in the corporation. Limited partners – Partners who don’t participate actively in the business and whose liability is limited to the amount the invested in the partnership. Limited partnership – A type of partnership with at least one general partner and one or more limited partners. Merger – The union of two companies to form a single new business. Outside directors – Members of a corporation’s board of directors who are not also employees of the corporation. Partnership – A form of organization established when two or more persons agree to combine their financial, managerial, and technical abilities for the purpose of operating a business for profit. Private corporations – A business whose shares are held by a small group of individuals and is not usually available for sale to the general public. 2 Chapter 4 – Understanding Legal Forms of Business Organization Public corporations – A business who share are widely held and available for sale to the general public. Shareholders – Persons who own shares in a corporation. Shares – A share of ownership in a corporation. Sole proprietorship – A business owned and operated by one person. Spinoff – Strategy of setting up one of more corporate units as new, independent corporations. Unlimited liability – Personal liability for all debts of the business. Vertical merger – A merger of two firms that had previously had a buyer-seller relationship. ORGANIZING OPTIONS (FORMS OF BUSINESS OWNERSHIP) - 4 different types of ownership… The Sole Proprietorship - a sole proprietorship is a business owned by one person (an extension of yourself… not a legal entity) - may be large (ex. steel mill) or small (ex. lemonade stand) Advantages of a Sole Proprietorship - freedom - simple to start with low setup costs - tax benefits Disadvantages of a Sole Proprietorship - unlimited liability (must be paid out
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