FIN/571 Week 3 Discussion Questions.docx

References ross s westerfield r jaffe j jordan b 2016

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Ross, S., Westerfield, R., Jaffe, J., & Jordan, B. (2016). Corporate Finance (11th). New York, NY: McGraw-Hill. DQ Explain the advantages and disadvantages of conducting business as a corporation. A corporation is a form of business organization that is created as a distinct “legal person” composed of one or more actual individuals or legal entities. (2016, Ross, S., Westerfield, R., Jaffe, J., & Jordan, B.) Advantages of conducting business as a corporation: Limited liability - shareholders of a corporation are only liable up to the number of their investments as the corporate entity shields them from any further liability. Source of capital - a publicly-held corporation, in particular, can raise substantial amounts by selling shares or issuing bonds. Ownership transfers - it is not especially difficult for a shareholder to sell shares in a corporation, though this is more difficult when the entity is privately-held. Disadvantages of conducting business as a corporation: Double taxation - depending on the type of corporation, it may pay taxes on its income, after which shareholders pay taxes on any dividends received, so income can be taxed twice. Excessive tax filings - depending on the kind of corporation, the various types of income and other taxes that must be paid can require a substantial amount of paperwork. Independent management - if there are many investors having no clear majority interest, the management team of a corporation can operate the business without any real oversight from the owners. References: Ross, S., Westerfield, R., Jaffe, J., & Jordan, B. (2016). Corporate Finance (11th). New York, NY: McGraw-Hill. Bragg, S, 2017. Corporation Advantages and Disadvantages. Accounting Tools. Retrieved December 18, 2018, from - and-disadvantages.html DQ Compare operating as a sole proprietorship and as a corporation. What are the pros and cons of each? A sole proprietorship is a business owned by one person while a partnership is a business owned by two or more people. Below are the pros and cons of each type of firm: Pros of the Sole Proprietorship
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Easy and inexpensive to establish No need to pay unemployment taxes on yourself Owners may mix business and personal assets Cons of the Sole Proprietorship Subject personal liability losses Unable to raise capital by selling an interest in the business Life of the sole proprietorship is limited by the life of the sole proprietor Pros of the Partnership Relatively easy and inexpensive to establish Annual meetings not required Offers favorable taxation to most smaller businesses Cons of the Partnership Subject to unlimited personal liability losses of the business Individual partners bear responsibility for the actions of other partners Poorly organized partnerships and oral partnerships can lead to disputes among owners References: Ross, S., Westerfield, R., Jaffe, J., & Jordan, B. (2016). Corporate Finance (11th). New York, NY: McGraw-Hill.
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