Forms of Business Organization 8.1

Principal

Amount borrowed when getting a loan or issuing a bond

Franchise

Business investment that involves renting or leasing another successful business model

Stock

Certificate of ownership in a corporation; can be either common or preferred stock

Dividend

Check paid to stockholders, usually quarterly, representing a portion of corporate profits

Franchisor

Creator and owner of the business model that is rented or leased by investors

Double taxation

Feature of taxation that allows stockholders' dividends to be taxed both as corporate profit and as personal income

Corporation

Form of business organization recognized by law as a separate legal entity with all the rights and responsibilities of an individual, including the right to buy and sell property, enter into legal contracts, and to sue and be sued

General partnership

Form of partnership where all partners are jointly responsible for management and debts

Limited partnership

Form of partnership where one or more partners are not active in the daily running of the business, and whose liability for the partnership's debt is restricted to the amount invested in the business

Preferred stock

Form of stock with no voting privileges; has a higher claim on corporate income and assets than does common stock

Bond

Formal contract to repay borrowed money and interest on the borrowed money at regular future intervals

Common stock

Most basic form of corporate ownership, generally with one vote per share for stockholders

Interest

Payment made for the use of borrowed money; usually paid at periodic intervals for long-term bonds or loans

Stockholders

People who own a share or shares of stock in a corporation; same as shareholders

Franchisee

Person that invests in the business model of the franchisor with his or her own money and start-up costs

Unlimited liability

Requirement that an owner is personally and fully responsible for all losses and debts of a business; applies to proprietorship, and general partnerships

Limited life

Situation in which a firm legally ceases to exist when an owner dies or quits, or a new owner is added; applies to sole proprietorship and partnership

Inventory

Stock of goods held in reserve; includes finished goods waiting to be sold and raw materials to be used in production

Comprise

To be composed of

Partnership

Unincorporated business owned and operated by two or more people who share the profits and have unlimited liability for the debts and obligations of the firm

Sole proprietorship

Unincorporated business owned and run by a single person who has rights to all profits and unlimited liability for all debts of the firm; most common form of business organization in the United States

Entity

Unit or being

Charter

Written government approval to establish a corporation; includes company name, address, purpose of business, number of shares of stock, and other features of the business