CORPORATE FINANCE (LL) >CUSTOM<
5th Edition
ISBN: 9781260694376
Author: Ross
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Question
Chapter 1, Problem 1CQ
Summary Introduction
To discuss: The three types of business organizations, merits and demerits of each organizations and what form of business take more start-up and why.
Expert Solution & Answer
Explanation of Solution
The three types of business organizations is as follows:
- Sole proprietorship
Partnership - Corporation
The advantages of sole proprietorship is as follows:
- Less paper work
- Simplified tax setup
- Lesser business fees
- Less cost of formation
- Simplified business proprietorship
The advantages of partnership is as follows:
- Less cost of formation.
- More cash
- More opportunities to business
- Cost savings
The advantages of corporation is as follows:
- Limited liability
- Easy to transfer ownership
- Admittance to capital market
- Continuous existence
The disadvantages of sole proprietorship is as follows:
- Difficulty in contributing large capital
- Restricted life
- Liability is unlimited
The disadvantages of partnership is as follows:
- Liability is unlimited
- Restricted life
- Difficulty in transmitting ownership
The disadvantages of corporation is as follows:
- Double
taxation of incomes - Obligation to file state and federal reports for registering is expensive
- Complex and time consuming
In case of starting a new business, the most take form is partnership or sole proprietorship for the reason that it is very easy to start these types of business.
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