BUS 121-51 Chapter 4

Sole Proprietorship

a business that is owned (and usually operated) by one person.

Advantages of Sole Proprietorships

1 Ease of start-up and closure2 Pride of ownership3 Retention of all profits 4 Flexibility of being your own boss5 No special taxes

Disadvantages of Sole Proprietorships

1 Unlimited liability2 Lack of continuity3 Lack of money4 Limited management skills5 Difficulty in hiring employees

Unlimited Liability

a legal concept that holds a business owner personally responsible for all the debts of the business.


a voluntary association of two or more persons to act as co-owners of a business for profit.

Types of Parterners

1 General2 Limited

General Partners

a person who assumes full or shared responsibility for operating a business.

General Partnership

a business co-owned by two or more general partners who are liable for everything the business does.

Limited Partner

a person who contributes capital to a business but has no management responsibility or liability for losses beyond the amount he or she invested in the partnership.

Limited Partnership

a business co-owned by one or more general partners who manage the business and limited partners who invest money in it.

Master Limited Partnership (MLP)

a business partnership that is owned and managed like a corporation but often taxed like a partnership.

Articles of Partnership

are an agreement listing and explaining the terms of the partnership.

Advantages of Partnerships

1 Ease of setup2 Availability of capital and credit3 Personal interest4 Combined business skills and knowledge5 Retention of profits6 No special taxes

Disadvantages of Partnerships

1 Unlimited liability2 Management disagreements3 Lack of continuity4 Frozen investment


an artificial person created by law with most of the legal rights of a real person, including the rights to start and operate a business, to buy or sell property, to borrow money, to sue or be sued, and to enter into binding contracts.


the shares of ownership of a corporation.


a person who owns a corporation's stock.

Closed Corporation

a corporation whose stock is owned by relatively few people and is not sold to the general public.

Open Corporation

a corporation whose stock can be bought and sold by an individual.

Domestic Corporation

a corporation in the state in which it is incorporated.

Foreign Corporation

a corporation in any state in which it does business except the one in which it is incorporated.

Allen Corporation

a corporation chartered by a foreign government and conducting business in the United States.

Common Stock

stocked owned by individuals or firms who may vote corporate matters but whose claims on profit and assets are subordinate to the claims of others.

Preferred Stock

stocked owned by individuals or firms who usually do not have voting rights but whose claims on dividends are paid before those of common-stock owners.


a distribution of earnings to the stockholders of a corporation.


a legal form listing issues to be decided at a stockholders' meeting and enabling stockholders to transfer their voting rights to some other individual (s).

Board of Directors

the top governing body of a corporation, the members of which are elected by the stockholders.

Corporate Officers

the chairman of the board, president, executive vice president, corporate secretary, treasurer, and any other top executive appointed by the board of directors.

Limited Liability

a feature of corporate ownership that limits each owner's financial liability to teh amount of money that he or she has paid for the corporation's stock.

Advantages of Corporations

1 Limited liability2 Ease of raising capital3 Ease of transfer of ownership4 Perpetual life5 Specialized management

Disadvantages of Corporations

1 Difficulty and expense of formation2 Government regulation and increase paperwork3 Conflict within the corporation4 Double taxation5 Lack of secrecy

Special Types of Business Ownership

1 S-Corporations2 Limited-liability Companies3 Government-owned Corporations 4 Not-for-Profit Corporations


a corporation that is taxed as though it were a partnership

Limited-Liability Company (LLC)

a form of business ownership that combines the benefits of corporations and a partnership while avoiding some of the restrictions and disadvantages of those forms of ownership.

Government-Owned Corporation

a corporation owned and operated by a local, state, or federal government.

Not-for-Profit Corporation

a corporation organized to provide a social, educational, religious, or other service rather than to earn a profit.


an association of individuals or firms whose purpose is to perform some business function for its members.

Joint Venture

an agreement between two or more groups to form a business entity in order to achieve a specific goal or to operate for a specific period of time.


a temporary association of individuals or firms organized to perform a specific task that requires a large amount of capital.


the purchase of one corporation by another

Hostile Takeover

a situation in which the management and board of directors of a firm targeted for acquisition disapprove of the merger.

Tender Offer

an offer to purchase the stock of a firm targeted for acquisition at a price just high enough to tempt stockholders to sell their shares.

Proxy Fight

a technique used to gather enough stockholder votes to control a targeted company.

Leveraged Buyout (LBO)

a purchase arrangement that allows a firm's managers and employees or a group of investors to purchase the company.