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Berk1_SM_CH01

Berk1_SM_CH01 - Chapter 1 Corporate Finance and the...

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Chapter 1 Corporate Finance and the Financial Manager Note: A box ( ± ) indicates problems available in MyFinanceLab. 1. A corporation is a legal entity separate from its owners. This means ownership shares in the corporation can be freely traded. None of the other organizational forms share this characteristic. 2. Owners’ liability is limited to the amount they invested in the firm. Stockholders are not responsible for any encumbrances of the firm; in particular, they cannot be required to pay back any debts the incurred by the firm. 3. Corporations and limited liability companies. Limited partnerships provide limited liability for the limited partners, but not for the general partners. 4. Advantages: Limited liability, liquidity, infinite life Disadvantages: Double taxation, separation of ownership and control 5. C corporations must pay corporate income taxes; S corporations do not pay corporate taxes but must pass on the income to shareholders to whom it is taxable. S corporations are also limited to
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Berk1_SM_CH01 - Chapter 1 Corporate Finance and the...

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