Corporate Structures and Ownership quiz

Double taxation refers to a situation in which a country taxes corporations' gross earnings and then taxes net earnings distributed to owners (dividends) as personal income. Partnership profits are subject to only one level of taxation (they are personal income of the partners) .

(sole proprietorship) is correct because "the simplest business structure is the sole proprietorship, also called the sole trader....key features of sole proprietorships include: Operational simplicity and flexibility".

(limited partnership) is incorrect because "key features of limited partnerships include the following:

• GP operates the business, having unlimited liability,
•  LPs have limited liability but lack control over business operations.

" Due to multiple partners and partnership agreement, this structure is not as simple and flexible as a sole proprietorship. "Key features of sole proprietorships include: Operational simplicity and flexibility." 

(general partnership) is incorrect because "a general partnership...has two or more owners called partners whose roles and responsibilities in the business are outlined in a partnership agreement." As such, this structure is not as simple and flexible as a sole proprietorship. "Key features of sole proprietorships include: Operational simplicity and flexibility".

Because the upside for lenders is limited to the promised interest payments and repayment of principal, they do not benefit from an increased growth rate of the company and are unlikely to favor actions that increase a company's risk exposure and potential for default. Because owners have potentially unlimited upside from a company's growth, they are more likely to favor actions that increase a company's potential growth rate.

From the issuer’s perspective, bonds are riskier than stocks for the same reason bonds are safer than stocks for investors. Bonds increase risk to the corporation by increasing leverage. If the company is struggling and cannot meet its promised obligations to bondholders, bondholders have the legal standing to force certain actions upon the corporation, such as bankruptcy and liquidation

Leveraged buyouts can result in a public company going private. Direct listings and special purpose acquisition companies are methods for a private company to go public.

the statement is true. If a company fails to meet its obligation to bondholders and ultimately needs to petition the courts for bankruptcy protection, a potential alternative to asset liquidation to maximize proceeds for debt repayment is business reorganization. Following that path through the legal process as opposed to transactions in private or public markets, the company can be reorganized with shareholders getting wiped out and bondholders becoming its new shareholders.

In a corporation, owners are most often not directly involved in operating the business. Both general partnerships and limited partnerships have general partners who operate the business .

Assuming a company is repaying interest and principal in full and on time, debt holders have no further claims. Equity holders benefit from company growth . 

A sole proprietorship is legally an extension of the individual who owns and operates it. The owner has unlimited liability for obligations the business incurs.

An initial public offering is a sale of equity shares to the public. Proceeds from the sale increase the issuer's equity capital. A direct listing does not raise capital. A management buyout is a method to take a public company private.