A partnership has the same tax advantage as the proprietorship. The partnership per sedoes not pay taxes. The partnership files a tax return, but all of the partnership incomeis allocated to the partners and treated as personal income. Also, it is fairly easy to setup a partnership. Because there can be many partners, a partnership can raise capitalmore easily than a proprietorship. However, like sole proprietors, partners haveunlimited liability for the debts of the firm. In fact, each partner has unlimited liabilityfor all the business’s debts, not just his or her share.Corporate organization has the advantage of limited liability. It also allows forseparation of ownership and management, since shares in the firm can be tradedwithout changing management. The corporation also has easier access to capitalmarkets. The major disadvantage of corporate organization is the double taxation of income. Corporations pay taxes on their income, and that income is taxed again whenit is passed through to shareholders in the form of dividends. Another disadvantage of corporate organization is the extra time and cost required in order to manage acorporation’s legal affairs. These costs arise because the corporation must be charteredand is considered a distinct legal entity. Such administrative costs are significant onlyfor small corporations, however.5.
means that a corporation’s income is taxed first at the corporate taxrate, and then, when the income is distributed to shareholders as dividends, theincome is taxed again at the shareholder’s personal tax rate.6. a, c, d.7. a. A share of stock financialb. A personal IOU financialc. A trademark reald. A truck reale. Undeveloped land realf. The balance in the firm’s checking account financialg. An experienced and hardworking sales force realh. A bank loan agreement financial8.
Agency costs are caused by conflicts of interest between managers andshareholders, the owners of the firm. In most large corporations, the principals (i.e.,the stockholders) hire the agents (i.e., managers) to act on behalf of the principals inmaking many of the major decisions affecting the corporation and its owners.However, it is unrealistic to believe that the agents’ actions will always beconsistent with the objectives that the stockholders would like to achieve.Managers may choose not to work hard enough, to over-compensate themselves, toengage in empire building, to over-consume perquisites, and so on.Corporations use numerous arrangements in an attempt to ensure that managers’actions are consistent with stockholders’ objectives. Agency costs can be mitigatedby ‘carrots,’ linking the manager’s compensation to the success of the firm, or byhttp://shaikhwaqar.blogspot.com1-2