A) If a corporation elects to be taxed as an S corporation, then both it and its stockholders can avoid all Federal taxes. This provision was put into the Federal Tax Code in order to encourage the formation of small businesses.
B) The more capital a firm is likely to require, the smaller the probability that it will be organized as a corporation.
C) It is generally easier to transfer one's ownership interest in a partnership than in a corporation.
D) One danger of starting a proprietorship is that you may be exposed to personal liability if the business goes bankrupt. This problem would be avoided if you formed a corporation to operate the business.
E) Corporate shareholders are exposed to unlimited liability, but this factor is offset by the tax advantages of incorporation.
G) A) and C)
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A) One advantage of forming a corporation is that equity investors are usually exposed to less liability than they would be in a partnership.
B) Corporations face fewer regulations than proprietorships.
C) One disadvantage of operating a business as a proprietor is that the firm is subject to double taxation, because taxes are levied at both the firm level and the owner level.
D) It is generally less expensive to form a corporation than a proprietorship because, with a proprietorship, extensive legal documents are required.
E) If a partnership goes bankrupt, each partner is exposed to liabilities only up to the amount of his or her investment in the business.
G) B) and C)
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B) False
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B) False
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A) 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.
B) Most businesses (by number and total dollar sales) are organized as proprietorships or partnerships because it is easier to set up and operate 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.
C) Due to legal considerations related to ownership transfers and limited liability, which affect the ability to attract capital, most business (measured by dollar sales) is conducted by corporations in spite of large corporations' less favorable tax treatment.
D) Large corporations are taxed more favorably than proprietorships.
E) Corporate stockholders are exposed to unlimited liability.
G) B) and D)
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B) False
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A) A hostile takeover is the main method of transferring ownership interest in a corporation.
B) A corporation is a legal entity created by a state, and it has a life and existence that is separate from the lives and existence of its owners and managers.
C) Unlimited liability and limited life are two key advantages of the corporate form over other forms of business organization.
D) Limited liability is an advantage of the corporate form of organization to its owners (stockholders) , but corporations have more trouble raising money in financial markets because of the complexity of this form of organization.
E) Although the stockholders of the corporation 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 the firm's managers if the firm defaults on its debt.
G) None of the above
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A) The NYSE does not exist as a physical location. Rather it represents a loose collection of dealers who trade stock electronically.
B) An example of a primary market transaction would be your uncle transferring 100 shares of Walmart stock to you as a birthday gift.
C) Capital market instruments include both long-term debt and common stocks.
D) If your uncle in New York sold 100 shares of Microsoft through his broker to an investor in Los Angeles, this would be a primary market transaction.
E) While the two frequently perform similar functions, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise large blocks of capital from investors.
G) B) and C)
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B) False
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B) False
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B) False
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A) A corporation's short-run profits will almost always increase if the firm takes actions that the government has determined are in the best interests of the nation.
B) Firms and government agencies almost always agree with one another regarding the restrictions that should be placed on hiring and firing employees.
C) "Whistle blowers," because of the courage it takes to blow the whistle, are generally promoted more rapidly than other employees.
D) It is not useful for large corporations to develop a formal set of rules defining ethical and unethical behavior.
E) Although people's moral characters are probably developed before they are admitted to a business school, it is still useful for business schools to cover ethics, if only to give students an idea about the adverse consequences of unethical behavior to themselves, their firms, and the nation.
G) All of the above
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A) Hostile takeovers are most likely to occur when a firm's stock is selling below its intrinsic value as a result of poor management.
B) The efficiency of the U.S. economy would probably be increased if hostile takeovers were absolutely forbidden.
C) The managers of established, stable companies sometimes attempt to get their state legislatures to remove rules that make it more difficult for raiders to succeed with hostile takeovers.
D) In general, it is more in bondholders' interests than stockholders' interests for a firm to shift its investment focus away from safe, stable investments and into risky investments, especially those that primarily involve research and development.
E) Stockholders in general would be better off if managers never disclosed favorable events and therefore caused the price of the firm's stock to sell at a price below its intrinsic value.
G) C) and D)
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B) False
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A) Foreign currencies.
B) Consumer automobile loans.
C) Common stocks.
D) Long-term bonds.
E) Short-term debt securities such as Treasury bills and commercial paper.
G) None of the above
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A) Corporations generally face fewer regulations than proprietorships.
B) Corporate shareholders are exposed to unlimited liability.
C) It is usually easier to transfer ownership in a corporation than in a partnership.
D) Corporate shareholders are exposed to unlimited liability, but this factor is offset by the tax advantages of incorporation.
E) There is a tax disadvantage to incorporation, and there is no way any corporation can escape this disadvantage, even if it is very small.
G) C) and D)
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B) False
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