Chapter 4-Business

• Perpetual life

Since it is essentially a legal "person," a corporation exists independently of its owners and survives them. The withdrawal, death, or incompetence of a key executive or owner does not cause the corporation to be terminated.

• Open corporation; closed corporation

A closed corporation is a corporation whose stock is owned by relatively few people and is not sold to the general public An open corporation is one whose stock can be bought and sold by any individual.

• Domestic corporation; foreign corporation; alien corporation

An incorporated business is called a domestic corporation in the state in which it is incorporated. In all other states where it does business, it is called a foreign corporation. A corporation chartered by a foreign government and conducting business in the United States is an alien corporation.

• Articles of partnership

Articles of partnership refers to an agreement listing and explaining the terms of the partnership. Although both oral and written partnership agreements are legal and can be enforced in the courts, a written agreement has an obvious advantage. It is not subject to lapses of memory.

• Limited liability

One of the most attractive features of corporate ownership is limited liability. With few exceptions, each owner's financial liability is limited to the amount of money he or she has paid for the corporation's stock.

• Stock; stockholder

The shares of ownership of a corporation are called stock. The people who own a corporation's stock—and thus own part of the corporation—are called stockholders.

Unlimited liability

Unlimited liability is a legal concept that holds a business owner personally responsible for all the debts of the business. There is legally no difference between the debts of the business and the debts of the proprietor. If the business fails, or if the business is involved in a lawsuit and loses, the owner's personal property—including savings and other assets—can be seized (and sold if necessary) to pay creditors.

Partnership (definition, advantages & disadvantages, examples)

a voluntary association of two or more persons to act as co-owners of a business for profit. For example, in 1990, two young African-American entrepreneurs named Janet Smith and Gary Smith started IVY Planning Group—a company that provides full-service management consulting for clients. Advantages: Ease of start-up, availability of capital and credit, personal interest, combined business skills and knowledge, retention of profits, no special taxes Disadvantages: Unlimited liability, management disagreements, lack of continuity, frozen investment.

Corporation (definition, advantages & disadvantages, examples)

is an artificial person created by law, with most of the legal rights of a real person. These include The right to start and operate a business The right to buy or sell property The right to borrow money The right to sue or be sued The right to enter into binding contracts Advantages: Limited liability, ease of raising capital, ease of transfer of ownership, perpetual life, specialized management. Disadvantages: Difficulty and expense of formation, government regulation and increased paperwork, conflict within the corporation, double taxation, lack of secrecy.

Types of partners

A general partner is a person who assumes full or shared responsibility for operating a business. A limited partner is a person who invests money in a business but who has no management responsibility or liability for losses beyond his or her investment in the partnership.

• Horizontal merger; vertical merger; conglomerate merger

A horizontal merger is a merger between firms that make and sell similar products or services in similar markets. The merger between American Airlines and US Airways is an example of a horizontal merger because both firms provide customers with air travel to destinations in the United States and around the globe. A vertical merger is a merger between firms that operate at different but related levels in the production and marketing of a product. Generally, one of the merging firms is either a supplier or a customer of the other. A vertical merger occurred when computer software and hardware giant Oracle acquired BlueKai A conglomerate merger takes place between firms in completely different industries. A conglomerate merger occurred when financial conglomerate Berkshire Hathaway acquired Duracell.

Joint venture; syndicate

A joint venture is 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. Both the scope of the joint venture and the liabilities of the people or businesses involved usually are limited to one project. Once the goal is reached, the period of time elapses, or the project is completed, the joint venture is dissolved. A syndicate is a temporary association of individuals or firms organized to perform a specific task that requires a large amount of capital. The syndicate is formed because no one person or firm is willing to put up the entire amount required for the undertaking. Like a joint venture, a syndicate is dissolved as soon as its purpose has been accomplished.

Sole proprietorship (definition, advantages & disadvantages, examples)

A sole proprietorship is a business that is owned (and usually operated) by one person. Although a few sole proprietorships are large and have many employees, most are small. Most of the advantages of sole proprietorships arise from the two main characteristics of this form of ownership: simplicity and individual control. Ease of start-up and closure, pride of ownership, retention of all profits, no special taxes, flexibility of being your own boss. The disadvantages of a sole proprietorship stem from the fact that these businesses are owned by one person. Some capable sole proprietors experience no problems. Individuals who start out with few management skills and little money are most at risk for failure. Unlimited liability, Lack of continuity, Lack of money, Limited management skills, difficulty in hiring employees.

S-Corporation; limited-liability company; not-for-profit corporation

An S corporation is a corporation that is taxed as though it were a partnership. In other words, the corporation's income is taxed only as the personal income of its stockholders. A limited-liability company (LLC) is a form of business ownership that combines the benefits of a corporation and a partnership while avoiding some of the restrictions and disadvantages of those forms of ownership. A not-for-profit corporation (sometimes referred to as non-profit) is a corporation organized to provide a social, educational, religious, or other service rather than to earn a profit.

• Common stock; preferred stock; dividend

Owners of common stock may vote on corporate matters. Generally, an owner of common stock has one vote for each share owned. However, any claims of common-stock owners on profits, dividends, and assets of the corporation are paid after the claims of others. The owners of preferred stock usually have no voting rights, but their claims on dividends are paid before those of common-stock owners. Although some large corporations may issue both common and preferred stock, generally smaller corporations issue only common stock. A dividend is a distribution of earnings to the stockholders of a corporation. Other rights include receiving information about the corporation, voting on changes to the corporate charter, and attending the corporation's annual stockholders' meeting, where they may exercise their right to vote.

Merger

The combining of two corporations or other business entities to form one business is called a merger.

• Articles of incorporation

When the articles of incorporation are approved, they become a contract, often called the corporate charter, between a corporation and the state in which the state recognizes the formation of the artificial person that is the corporation. Usually, the articles of incorporation include the following information: The firm's name and address The incorporators' names and addresses The purpose of the corporation The maximum amount of stock and types of stock to be issued The rights and privileges of stockholders The length of time the corporation is to exist