Professional Documents
Culture Documents
Business Organizations
Business Organizations
Disadvantages:
Advantages:
* Taxation: The owner does not have to pay corporate taxes. She will have to pay
taxes at the personal income tax rate.
Disadvantages:
Solutions:
There are ways to solve this agency problem. A common one is to make managers part
owners in the company by offering them shares as part of their compensation
package. Since the managers are now owners them interest is aligned with other
owners and so they will work in all owner's best interests.
Another disadvantage of a corporation is double taxation. The corporation pays
taxes from its profits at corporate tax rates. If it pays dividends to its
shareholders, then these dividends (?????)are also taxed. In some countries, the
company pays a dividend distribution tax. In other countries, shareholders are
taxed at the personal tax rate on any dividends earned. Either way, the same stream
of cash flow companies' profits is taxed twice. Remember that this is not the case
with sole proprietorships and partnerships, where the owner managers are taxed at
the personal income tax rate.