Homework Week #1
FIN 515
Homework #1
1-1. What is the most important difference between a corporation and all other organizational forms? Owners of a corporation are not liable for obligations the corporation enters into because a corporation is defined as a legal entity separate from its owners.
1-2. What does the phrase limited liability mean in a corporate context? Limited liability means that owners/investors are solely liable for the amounts they invested in the company; and owners/investors are not responsible for any debts, delinquent funds, or collections incurred by the company.
1-3. Which organizational forms give their owners limited liability? Corporations give owners limited liability and limited partnerships give limited liability to the limited partners, not the general partners.
1-4. What are the main advantages and disadvantages of organizing a firm as a corporation? The main advantages of an organization are they offer limited liability to the owners, greater liquidity and life span due to an unlimited number of potential owners investing funds into the firm.
The main disadvantages of an organization are their double taxation of profits/dividends and the separation between ownership and control of the firm.
1-5. Explain the difference between an S corporation and a C corporation. The difference between a C corporation and S corporation is a C corporation pays corporate income taxes on profits and then the profits are distributed to the owners, whom are responsible for paying income taxes on these earnings. S corporations do not pay corporate taxes on profits, but they pass the entire tax liability onto the owners. The owners of an S corporation are limited to no more than 100 U.S. citizens.
1-6. You are a shareholder in a C corporation. The corporation earns $2 per share before taxes. Once it has paid taxes it will distribute the rest of its earnings to you as a dividend. The corporate tax rate is 40% and the personal tax
Homework #1
1-1. What is the most important difference between a corporation and all other organizational forms? Owners of a corporation are not liable for obligations the corporation enters into because a corporation is defined as a legal entity separate from its owners.
1-2. What does the phrase limited liability mean in a corporate context? Limited liability means that owners/investors are solely liable for the amounts they invested in the company; and owners/investors are not responsible for any debts, delinquent funds, or collections incurred by the company.
1-3. Which organizational forms give their owners limited liability? Corporations give owners limited liability and limited partnerships give limited liability to the limited partners, not the general partners.
1-4. What are the main advantages and disadvantages of organizing a firm as a corporation? The main advantages of an organization are they offer limited liability to the owners, greater liquidity and life span due to an unlimited number of potential owners investing funds into the firm.
The main disadvantages of an organization are their double taxation of profits/dividends and the separation between ownership and control of the firm.
1-5. Explain the difference between an S corporation and a C corporation. The difference between a C corporation and S corporation is a C corporation pays corporate income taxes on profits and then the profits are distributed to the owners, whom are responsible for paying income taxes on these earnings. S corporations do not pay corporate taxes on profits, but they pass the entire tax liability onto the owners. The owners of an S corporation are limited to no more than 100 U.S. citizens.
1-6. You are a shareholder in a C corporation. The corporation earns $2 per share before taxes. Once it has paid taxes it will distribute the rest of its earnings to you as a dividend. The corporate tax rate is 40% and the personal tax