Chapter 4 – Understanding Legal Forms of Business Organization
Understanding Legal Forms of Business Organization
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
Chief executive officer (CEO) – The person responsible for the firm’s overall
Conglomerate merger – A merger of two firms in completely unrelated
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,
Unlimited liability – Personal liability for all debts of the business.
Vertical merger – A merger of two firms that had previously had a buyer-seller
ORGANIZING OPTIONS (FORMS OF BUSINESS
- 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
- simple to start with low setup costs
- tax benefits
Disadvantages of a Sole Proprietorship
- unlimited liability (must be paid out