Question

29. One drawback of switching from a partnership to the corporate form of organization is the following:

a. It subjects the firm to additional regulations.

b. It cannot affect the amount of the firm's operating income that goes to taxes.

c. It makes it more difficult for the firm to raise additional capital.

d. It makes the firm's investors subject to greater potential personal liabilities.

e. It makes it more difficult for the firm's investors to transfer their ownership interests.

‏____ 30. Which of the following statements is CORRECT?

a. A hostile takeover is the main method of transferring ownership interest in a corporation.

b. Unlimited liability and limited life are two key advantages of the corporate form over other forms of business organization.

c. A corporation is a legal entity that is generally created by a state, and it has a life and existence that is separate from the lives of its individual owners and managers.

d. Limited liability of its stockholders is an advantage of the corporate form of organization, but corporations have more trouble raising money in financial markets because of the complexity of this form of organization.

e. Although its stockholders are insulated by limited legal liability, the legal status of the corporation does not protect the firm's managers in the same way, i.e., bondholders can sue its managers if the firm defaults on its debt, even if the default is the result of poor economic conditions.

‏____ 31. Which of the following statements is CORRECT?

a. In a regular partnership, liability for other partners' misdeeds is limited to the amount of a particular partner's investment in the business.

b. Partnerships have more difficulty attracting large amounts of capital than corporations because of such factors as unlimited liability, the need to reorganize when a partner dies, and the illiquidity (difficulty buying and selling) of partnership interests.

c. A slow-growth company, with little need for new capital, would be more likely to organize as a corporation than would a faster growing company.

d. In a limited partnership, the limited partners have voting control, while the general partner has operating control over the business

‏____ 33. Which of the following statements is CORRECT?

a. Most businesses (by number and total dollar sales) are organized as proprietorships or partnerships because it is easier to set up and operate in one of these forms rather than as a corporation. However, if the business gets very large, it becomes advantageous to convert to a corporation, primarily because corporations have important tax advantages over proprietorships and partnerships.

b. Due to limited liability, unlimited lives, and ease of ownership transfer, the vast majority of U.S. businesses (in terms of number of businesses) are organized as corporations.

c. Due to legal considerations related to ownership transfers and limited liability, most business (measured by dollar sales) is conducted by corporations in spite of large corporations' often less favorable tax treatment.

d. Large corporations are taxed more favorably than sole proprietorships.

e. Corporate stockholders are exposed to unlimited liability.

Answer 1