Chapter 5

Albama Associates is a consulting firm owned by a few entrepreneurs. Rogo Consulting, a large consulting firm, tries to buy shares from some of the shareholders of Albama to obtain control of the company without making a formal acquisition proposal with the management. Albama's management invites a third party to acquire the company to prevent a hostile takeover by Rogo Consulting. This approach used by Albama to prevent hostile takeover is an example of a ________.

white knight tactic With the white knight tactic, a third company is invited to acquire a company that is in danger of being swallowed up in a hostile takeover. The given situation exemplifies a white knight tactic.

A public corporation refers to a corporation ________.

whose stock is sold to general people A public corporation refers to a corporation whose stock is sold to the general public. It is also known as publicly held or publicly traded corporation.

A corporation itself has limited liability on its transactions.

False

A joint venture does not result in a separate legal entity.

False

Which of the following statements is true of strategic alliances?

Strategic alliances don't create a unified entity with a single management structure. While strategic alliances avoid much of the work and risk of formal mergers, they don't create a unified entity that functions with a single management structure, information system, and other organizational elements.

Liquidity is a measure of how easily and quickly an asset can be converted into cash.

True

Who is the highest-ranked officer of a corporation?

chief executive officer The highest-ranking officer is the chief executive officer (CEO), and that person is aided by a team of other "C-level" executives, such as the chief financial officer (CFO), chief information officer (CIO), chief technology officer (CTO), and chief operating officer (COO).

In a(n) ________, two companies join to form a single entity either by pooling their resources or by one company purchasing the assets of the other.

merger In a merger, two companies join to form a single entity. Companies can merge either by pooling their resources or by one company purchasing the assets of the other.

The board of directors are ________.

representatives of the shareholders The board of directors are a group of professionals elected by shareholders as their representatives, with responsibility for the overall direction of the company and the selection of top executives.

Which of the following is a document that authorizes another person to vote on behalf of a shareholder in a corporation?

proxy A proxy is a document that authorizes another person to vote on behalf of a shareholder in a corporation.

A corporation primarily or wholly owned by another company is known as a(n) ________.

subsidiary A corporation primarily or wholly owned by another company is known as a subsidiary.

Which of the following is a valid observation of corporations?

A corporation is distinct from the people running it. A corporation is a legal entity, distinct from any individual persons, that has the power to own property and conduct business.

Edwin runs an antique retail shop that is registered as a sole proprietorship. The liability exposure of Edwin's business ________.

is unlimited for the business's personal obligations The owner has unlimited personal liability for the business's financial obligations in a sole proprietorship. Edwin's business is a sole proprietorship in this case.

Which of the following business structures is the most complicated and expensive?

corporation Corporations are more complicated and expensive to establish than other structures. It involves more documentation and other requirements.

A ________ occurs when someone purchases a company's publicly-traded stock primarily by using borrowed funds, sometimes using the target company's assets as collateral for these loans.

leveraged buyout A leveraged buyout (LBO) occurs when someone purchases a company's publicly-traded stock primarily by using borrowed funds, sometimes using the target company's assets as collateral for these loans.

Profits of sole proprietorships ________.

flow directly to the owners Profits and losses of sole proprietorships flow directly to the owners and are taxed at individual rates.

Which of the following is an action that allows the companies to collaborate without formally combining?

strategic alliance Strategic alliances can accomplish many of the same goals as a merger or acquisition with less risk and work than permanently integrating two companies. Strategic partnership allows the companies to collaborate without formally combining.

A sole proprietorship ________.

is owned by only one person A sole proprietorship is a business owned by one person. However, it may have many employees.

Corporate officers of a company ________.

are hired by the board of directors of a company Corporate officers are hired by the board and generally have legal authority to conduct the company's business, in everything from hiring the rest of the employees to launching new products.

In a(n) ________, one company simply buys a controlling interest in the voting stock of another company.

acquisition In an acquisition, one company simply buys a controlling interest in the voting stock of another company. In most acquisitions, the selling parties agree to be purchased.

In a general partnership, ________.

all partners have joint authority to make decisions In a general partnership, all partners have joint authority to make decisions for the firm and joint liability for the firm's financial obligations.

A ________ merger occurs when companies in unrelated industries join to form a single entity

conglomerate A conglomerate merger occurs when companies in unrelated industries join to form a single entity.

A disadvantage of the corporate structure is that it ________.

involves strict reporting requirements To help investors make informed decisions about stocks, government agencies require publicly-traded companies to publish extensive and detailed financial reports. These reports can eat up a lot of staff and management time, and they can expose strategic information that might benefit competitors or discourage investors unwilling to wait for long-term results

A potentially significant disadvantage of a partnership is that ________.

it has more chances for disagreement and conflict Partners can disagree over business strategy, the division of profits (or the liability for losses), hiring and firing of employees, and other significant matters. This attracts more conflicts in the business.

Robex Retail is a retail chain that has more than 390 stores in the United States. The directors of the company decide to launch operations in Italy to increase the company's market reach. Many of the shareholders think that this decision is not appropriate in light of the economic slowdown in Europe. A group of shareholders unite to pressurize the board of directors to change their decision. This is an example of ________.

shareholder activism Shareholder activism refers to activities taken by shareholders (individually or in groups) to influence executive decision making in areas ranging from strategic planning to social responsibility.

Which of the following is a key advantage of incorporating a business as a sole proprietorship?

It is easy to establish and requires less paperwork than other structures. A sole proprietorship is easy to establish and requires far less paperwork than other structures. The only legal requirement for establishing a sole proprietorship is obtaining the necessary business licenses and permits required by the city, county, and state.

Which of the following is a key difference between private corporations and public corporations?

Private corporations are owned by a few people, whereas public corporations can be owned by anyone who has the means to buy stake. The stock of a private corporation is owned by only a few individuals or companies, whereas the stock of a public corporation is sold to anyone who has the means to buy it.

A group of college graduates starts a business. They want to give their business a structure such that their risk is limited to the amount they have invested in the business. They also want to avoid double taxation of the income that they generate from the business. Which of the following structures is most suitable to satisfy these wants?

S corporation S corporation is a type of corporation that combines the capital-raising options and limited liability of a corporation with the federal taxation advantages of a partnership. The owners can incorporate their business as an S corporation in order to satisfy their requirements

Which of the following is a key disadvantage of mergers and acquisitions?

They might present issues related to cultural harmony. The organizational cultures of the two firms engaging in a merger must be harmonized somehow after a merger. It can result in clashes between different values, management styles, communication practices, workplace atmosphere, and approaches to managing the changes required to implement the merger.

Government agencies require publicly traded companies to publish extensive and detailed financial reports.

True

A(n) ________ has most of the attributes of a regular corporation but adds the legal requirement that the company must also pursue a stated non-financial goal.

benefit corporation A benefit corporation has most of the attributes of a regular corporation but adds the legal requirement that the company must also pursue a stated non-financial goal, such as hiring workers whose life histories make employment difficult to attain, or reducing the environmental impact of particular products.

A ________ is allowed to raise money by selling units of ownership to the general public in the same way corporations sell shares of stock to the public.

master limited partnership A master limited partnership (MLP) is allowed to raise money by selling units of ownership to the general public in the same way corporations sell shares of stock to the public. This gives MLPs the fundraising capabilities of corporations without the double-taxation disadvantage.

A ________ is an unincorporated company owned by two or more people.

partnership Partnership is an unincorporated company owned by two or more people. The partnership structure is appropriate for firms that need more resources and leadership talent than a sole proprietorship but don't need the fundraising capabilities or other advantages of a corporation.

With a ________, a targeted company invokes some move that makes it less valuable to the potential raider, with the hope of discouraging the takeover.

poison pill defense With a poison pill defense, a targeted company invokes some move that makes it less valuable to the potential raider, with the hope of discouraging the takeover.

In a ________, the raider launches a public relations battle for shareholder votes, hoping to enlist enough votes to oust the board and management.

proxy fight In a proxy fight, the raider launches a public relations battle for shareholder votes, hoping to enlist enough votes to oust the board and management.

Robert owns three restaurants in Atlanta. He pays taxes for the income from the restaurants as his personal income. Robert's business is an example of a ________.

sole proprietorship A sole proprietorship is a business owned by one person.The restaurant is owned by Robert alone although its has three branches.