Entrepreneurship Exam 3
Optimum stocking level (reorder point)
Amount of inventory that results in the minimum cost
Piercing the veil
Dissolution of a corporate form, making it back into a sole proprietorship or general partnership, if the court finds that the owner carelessly mixed up personal and business assets or finances
Articles of organization
Document setting forth information about a limited liability company that is filed with the state to establish an LLC
Intellectual property
Property coming from some sort of original thought
Initial public offering (IPO)
Transfer method describing the first-time public sale of a stock listed on a public stock exchange
Partnership
Two or more people cooperating to conduct a business
Community development oranization
An organization authorized to make insured loans to small businesses that are expected to increase economic activity within a specific geographic area
Tax management
Estate planning strategy which focuses on minimizing estate tax payments
Estate freeze
Estate planning strategy which focuses on transferring assets to heirs when the asset costs are low
Limited liability company (LLC)
Have a choice of being taxed as either corporations or partnerships
Vicarious (indirect) liability
Indirect liability or responsibility for the actions of another
Risks related to intangible property
Intellectual property rights
Corporation
Legal "artificial" entity that is formed by filing specific documents with a state government
Debt
Legal obligation to pay money in the future
Personnel insurance (life, disability, medical)
Available to protect both you and your employee from specific risks
Fidelity bonds (dishonesty bonds)
Bonds that repay employers for losses caused by dishonest or negligent employees
Sole proprietorship
Business owned by a single individual who is responsible for all debts and claims against the business
Walkaways
Business termination in which the entrepreneur ends the business with its obligations met
Workout
Business termination in which the firm's legal or financial obligations are not fully met at closing
Open-book policy
Concept that employees should be able to see and understand a firm's financials
Credit insurance
Covers abnormal losses from credit customers not paying their bills
Mediation
Dispute is put to a neutral third party who is not a judge
Arbitration
Dispute resolution process held instead of court cases in which both sides present their case to a legal professional
Pass through (taxation)
Earnings of the business are distributed to the business owners and those owners pay individual tax on the earnings
Single taxation
Earnings of the business are taxed once with the owners paying the taxes
Double taxation
Earnings of the business are taxed twice with the business as well as its owners being subject to tax
Risks related to personnel
Employee theft Regulation of the workplace Protected classes Loss of key employees
Psychological contract
Employees' beliefs about the promises between the employee and the firm
Transfer
Endgame strategy in which ownership is moved from one person or group to another
Termination
Endgame strategy in which the owner closes down a business
Liquidity enhancement
Estate planning strategy which focuses on generating cash to cover likely estate taxes
Sarbanes-Oxley Act
Federal law describing the steps publicly traded businesses must take to protect and provide their key financial information
Litigation
Formal dispute resolution method that operates using the court system
Pledging receivables
Giving a third party legal rights to debts owed your business in order to provide assurance that borrowed money will be repaid
Independent contractors
Persons working to achieve a certain goal without being subjected to substantial controls by another
Slack resources
Profits that are available to be used to satisfy preferences of the owner in how the business is run
Critical success factors
1. Outside help 2. Entrepreneurial experience
Accelerator
An organization that supports startup technology businesses by providing inexpensive office space, a variety of support services, and resources
Financial leverage
Measurement of the amount of debt relative to total investment
Debt capital
Money borrowed for the purpose of investment in a business
Equity capital
Money contributed to the business in return for part ownership in the company
Outside equity
Money from selling part of the business to people who will not be involved in the management of the business
Trade name or assumed name
Name under which a business is operated
Limited partnership
One or more partners may have no liability for the debts and actions of the partnerships
Risks related to customers and others
Product liability Risk of nonpayment
Insurable value
The amount of an asset for which a company will write an insurance policy
Three elements to most aspects of business law
1. Finding the right information 2. Negotiating the specific outcome you want 3. Taking care of the paperwork associated with it
Six major factors in choosing a business form
1. Personal liability 2. Taxation 3. Complexity of setting up 4. Control of the business 5. Continuity of the business 6. Ability to raise capital
4 steps to structure a negotiation
1. Prepare 2. Position 3. Propose 4. Pounce
Design patent
14-year patent
Plant patent
20-year patent
Utility patent
20-year patent
Check the box taxation
A choice LLCs can make on their tax returns to be taxed as a corporation or a partnership
Employee stock ownership plan
A formalized legal method to transfer some or all of the ownership of a business to its employees
Articles of partnership
Agreement between the partners of a firm on matters pertaining to the formation and operation of the partnership
Cost of capital
Percentage cost of obtaining future funds
Harvest
Recover value through a sale of a firm or its assets
Supplemental profits
Returns above costs intended as a secondary income for entrepreneurs
Success profits
Returns at levels higher than the entrepreneur could make working for others
Substitution profits
Returns intended to equal and replace the salary or wages the entrepreneur could draw working for someone else
Internal control
Rules and procedures that work to limit the opportunity for employee theft or malfeasance
Factoring
Selling the rights to collect accounts receivable to an entity outside the business
Separation of duties
Separation of physical control of an asset from the person accounting for the asset
Infringer
Someone who uses intellectual property without the permission of the owner
Economic order quantity (EOQ)
Statistical technique that determines the quantity of inventory that a business must hold to minimize total inventory cost
Consolidation
Transfer method in which a small business is bought by a larger firm for the purpose of quickly growing the larger firm
Joint venture
Agreement between two or more entities to pool resources in order to complete a project
Surety bonds
Agreement with an insurance or bonding company that will pay a specified amount in the event that the entity bonded fails to comply with specified contractual requirements
Deductible
An amount of loss that will not be paid by an insurance company
Reorganization
Popular name for a Chapter 13 bankruptcy in which a bankrupt firm continues to operate while paying off debts identified by the bankruptcy trustee
Liquidation
Popular name for a Chapter 7 bankruptcy in which a bankrupt firm's assets are sold by the bankruptcy trustee and the proceeds used to pay the firm's debts
Intangible property
Property that has no value of its own but that represents value (stock certificate)
Optimum capital structure
Ratio of debt to equity that provides the maximum level of profits
Nepotism
Selecting and promoting people based on family ties
Meritocracy
Selecting and promoting people based solely on their being the most capable person for the job
Probationary period
Trial period in which an employee has temporary status before a formal offer to work full time is presented
Bootstrapping
Using funds generated by business operations to capitalize growth
Angel investor
Wealthy individual who invests in companies in relatively early stages of development