Answering the question Essay Example

Client to insert surname 3

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1st November, 2016.

Corporate finance

The advantages and disadvantages of a sole proprietorship and partnership are similar. Some of the advantages include that they are easy and inexpensive to form and they keep all the profits gained from an establishment. The primary disadvantages of the two include but are not limited to, the unlimited liability for debts incurred on the part of the owners. In addition, the businesses life span is limited to the owner’s life span and transferring ownership of the business is difficult (Jordan et al 6).

A corporation’s primary disadvantage as a legal entity is double taxation, whereby it must pay taxes to the states and the money paid to stockholders as dividends are also taxed. Its advantages on the other hand, include the ease of transferring of ownership owing to the separation of ownership and management. A corporation’s life span is also unlimited and it has a limited liability of debts (Jordan et al. 8).

No limited liability for corporation’s stockholders would translate to obligation beyond the amount invested to a corporation’s debts upon liquidation. Seizure of personal assets could happen to pay off the debts. The amount of capital share is also at risk of reducing each year according to the profit and loss levels. This affects investors shares purchase behavior as they would shy from buying shares from start-ups or companies seeking to expand for the fear of asset loss. The corporation on the other hand faces the risk of attracting few investors and failure to raise required capital. The share prices would also have to be reduced to attract investors

Reference

Jordan, Ross, and Westerfield. Essentials of Corporate Finance. 9th ed., McGraw-Hill Education, 2016.