MIrble Foretia

Answers to chapter one question

1 The major advantage of a sole proprietorship and partnership relative to a C-

corporation is that; under a sole proprietorship and partnership, taxation
occurs only at one level, while with a C-corporation, income is taxed twice.
That is, income from revenue is taxed and when profits are distributed to
owners, owners are again taxed on their individual dividend income.

2 Sole proprietorship and partnership have unlimited liability thus their assets,
both business and personal are at risk in case they are sued. While
corporations have limited liability thus stockholders and owners are at risk
only to the amount invested in the corporation.

3 The major advantage of a sole proprietorship is single taxation of income

while the major advantage of C-corporation is limited liability thus combined
together form an S- corp.

4 It has a stockholder limit of 100 members.

5 Partners of LLP enjoy limited liability (C-corp.) and single taxation ( sole
proprietorship) when income is distributed.

6 Corporate veil can be pierced if fraud or no separate entity.

7 Agency issues deals with motivation where agents have control over the
corporation.

8 Managers should be given stock options if they reach goals that are
consistent with the shareholders desires. They will then become shareholders
too and will have similar interests like the shareholders.