Chapter 1 questions
6. 4 business organizations and advantages and disadvantages- The four alternative forms of business organizations are Sole Proprietorship, partnership, Corporation, and LLC or Limited liability Company. The advantages of a Sole Proprietorship and Partnership are roughly the same. The advantages are easily and inexpensively formed, subject to few government regulations, and subject to lower income taxes that are corporations. The disadvantages of proprietorships and partnerships are unlimited personal liability for the business’ debts, meaning they can lose more than the amount of money they put into the company. Life of the business is limited to the like of the individual who created it; brings in new equity, therefore investors require a change in the structure of the business. Lastly, they have a very difficult time obtaining large sums of capital. Both proprietorships and partnerships have short lives, but they are good starting points for business’ to turn into corporations. Corporation’s advantages are that the corporation itself can lose all of its money, but its owners only lose the funds they have invested in the company. Also, having unlimited life, and it being easier to transfer shares of stock in a corporation rather than one’s interest in an unincorporated business. These factors make it easier for corporations to raise the capital necessary to operate large businesses. Corporations disadvantages are double taxation and the effects of cost set-up and report filling. LLC or Limited Liability Company is a hybrid mixture between a partnership and a corporation, this meaning the LLC has limited liability like a corporation, but are taxed like a partnership. This is very rare and is voted in percentages to their ownership interest.
7. The stockholders wealth maximization should be thought of as a long-term goal because you need the stockholders to invest in your company in order to have your company be