Question

Compared with the sole proprietorship and partnership forms of business organization, the corporate form generally faces with ________ difficulty in raising capital and transferring ownership, ________ taxation, and _______ agency problems. a. Less; Less; More b. Less; More; Less c. Less; More; More d. More; More; Less e. More; Less; More

Answer 1

The answer is (c) Less; More; More

Compared with the sole proprietorship and partnership forms of business organization, the corporate form generally faces with _Less_ difficulty in raising capital and transferring ownership, _More_ taxation, and _More_ agency problems.

Explanation:

- The advantages of choosing sole proprietorship form are business are many however they face issues when it comes to raising capital since a sole proprietor cannot get his business listed to any stock exchange & invite public investment. Also, the shares of listed corporates can be easily traded and ownership can be transferred easily. Hence, corporates face less difficulty in raising capital.

- Usually, the tax rate applicable to corporates is higher than that applicable to the proprietor & partnership firms. And many times they face double taxation when dividends are distributed on the earned income. Hence, there is much more impact of taxation on a corporate.

- Agency problems refer to a conflict of interest in any relationship where one party is expected to act in another's best interests. In corporate, the conflict arises when the management has to act in the maximization of shareholder's wealth keeping aside increasing their own wealth. However, in other forms namely proprietorship & partnerships, this is not the problem since owners & management are mostly the same. Hence, corporates face more agency problems.