* Firms that sell stock that is traded in financial markets such as the New York Stock Exchange are called public firms, whereas firms that do not sell stock are called private firms. * Sole proprietorship A firm owned by a single individual and not organized as a corporation. * Partnership A firm owned jointly by two or more persons and not organized as a corporation. * Corporation A legal form of business that provides owners with protection from losing more than their investment should the business fail. * Unlimited liability means there is no legal distinction between the personal assets of the owners of the firm and the assets of the firm. * Asset Anything of value owned by a person or a firm * Limited liability The legal provision that shields owners of a corporation from losing more than they have invested in the firm. * * Profit is the difference between revenue and the total cost to a firm of producing the goods and services it offers for sale. * Corporate governance The way in which a corporation is structured and the effect that structure has on the corporation’s behavior. * Corporate Structure and Corporate Governance * Shareholders are the owners of a corporation’s stock whose interests are represented by a board of directors who appoints a chief executive officer (CEO) to run the day-to-day operations of the corporation and sometimes other members of top management, such as the chief financial officer (CFO).
Members of the board are referred to as either inside or outside directors, depending on their management role in the firm. * Separation of ownership from control A situation in a corporation in which the top management, rather than the shareholders, control day-to-day operations. * Principal–agent problem A problem caused by an agent pursuing his own interests rather than the