Sole proprietorship

With this type of business organization, you are the sole owner, and fully responsible for all debts and
obligations related to your business. All profits are yours to keep. Because you are personally liable, a
creditor can make a claim against your personal assets as well as your business assets in order to satisfy
any debts.

Partnership
A partnership is a non-incorporated business that is created between two or more people. In a
partnership, your financial resources are combined with those of your business partner(s), and put into
the business. You and your partner(s) would then share in the profits of the business according to any
legal agreement you have drawn up.

Corporation
Another type of business structure is a corporation. Incorporation can be done at the federal or
provincial/territorial level. When you incorporate your business, it is considered to be a legal entity that
is separate from its shareholders. As a shareholder of a corporation, you will not be personally liable for
the debts, obligations or acts of the corporation. It is always wise to seek legal advice before
incorporating.

Limited partnership
A limited partnership (LP) exists when two or more partners unite to jointly conduct a business
in which one or more of the partners is liable only to the extent of the amount of money that
partner has invested. Limited partners do not receive dividends, but enjoy direct access to the
flow of income and expenses. This term is also referred to as a "limited liability partnership"
(LLP). The main advantage to this structure is that the owners are typically not liable for the
debts of the company.

Professional cooperation
Professional Corporations (PCs), also known as professional service corporations, were created to allow
certain kinds of professionals such as doctors, lawyers, accountants, or engineers to do business as a
professional corporation.

Stockholder wealth maximization

When business managers try to maximize the wealth of their firm, they are actually trying to increase
their stock price. As the stock price increases, the individual who holds the stock wealth increases. As
the stock price goes up, the value of the firm increases and the net worth of the individual who owns the
stock increases.

Social responsibility
Social responsibility is the idea that businesses should balance profit-making activities with activities that
benefit society. It involves developing businesses with a positive relationship to the society in which they
operate.

Normal profit
A normal profit is an economic condition that occurs when the difference between a firm’s total revenue
and total cost is equal to zero. Simply put, normal profit is the minimum level of profit needed for a
company to remain competitive in the market.

Normal rate of return

NORMAL RATE OF RETURN, for individuals, is the average rate of return on all investments, i.e. the
average of all returns yields the normal rate of return. For capital investments for businesses, it is the
profit relative to capital investment.

Agency problem
The agency problem is a conflict of interest inherent in any relationship where one party is expected to
act in another's best interests. In corporate finance, the agency problem usually refers to a conflict of
interest between a company's management and the company's stockholders. The manager, acting as
the agent for the shareholders, or principals, is supposed to make decisions that will maximize
shareholder wealth even though it is in the manager’s best interest to maximize his own wealth.

Economic value added

Economic value added (EVA) is a measure of a company's financial performance based on the residual
wealth calculated by deducting its cost of capital from its operating profit, adjusted for taxes on a cash
basis. EVA can also be referred to as economic profit, as it attempts to capture the true economic profit
of a company.

Performance share
Performance shares (as a form of stock compensation) are shares of company stock given to managers
and executives only if certain company-wide performance criteria are met, such as earnings per share
targets.

Executive stock option

An executive stock option is a contract that grants the right to buy a specified number of shares of the
company's stock at a guaranteed "strike price" for a period of time, usually several years. The executive
is under no obligation to exercise, or use, the options, but if she decides to do so, the company must
honor the contract. If the company's stock goes up in price, the executive can exercise the options to
buy stock at the strike price and then sell the shares at the market price, keeping the difference as
profit.

Hostile takeover
A hostile takeover is a type of corporate acquisition or merger which is carried out against the wishes of
the board (and usually management) of the target company.

Profit maximization
Profits are maximized when marginal revenue = marginal cost