Question

Which of the following statements is CORRECT? a. Because of their simplified organization, it is easier for proprietors and partnerships to raise large amounts of outside capital than it is for corporations. b. One advantage to forming a corporation is that the owners of the firm have limited liability. c. Corporations face few regulations and more favorable tax treatment than do proprietorships and partnerships. d. Bond covenants are an effective way to resolve conflicts between shareholders and managers. e. Managers who face the threat of hostile takeovers are less likely to pursue policies that maximize shareholder value compared to managers who do not face the threat of hostile takeovers.

Answer 1

Answer:

b. One advantage to forming a corporation is that the owners of the firm have limited liability.

Explanation:

Every equity shareholder has this advantage that he cannot be called off, in case of any liability in the company, as the company stands liable and not the shareholder, whereas in partnership or proprietorship even all the partners can be called off to meet the liability personally, in case of any failure from the firm.

Though firms have tax advantage, but this is the disadvantage to the firm that the liabilities are unlimited.