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