Try the fastest way to create flashcards

Chapter 1

Get a hint

What is the most important difference between a corporation and all other organization forms?

Click the card to flip 👆

1 / 6

1 / 6

Students also viewed

chapter 2 MFL questions

11 terms

6 terms

fin 300--ch.1-5

9 terms

75 terms

9 terms

Chapter 2 SCM 3301

25 terms

E120 - Conceptual Questions from PSets - First Half

17 terms

Chapter 6 - Elyse Engebretson

26 terms

Marketing Module 15 - Chapter 16/17

47 terms

Terms in this set (6)

What is the most important difference between a corporation and all other organization forms?

A corporation is a legal entity separate from its owners.

See an expert-written answer!

We have an expert-written solution to this problem!

What does the phrase limited liability mean in a corporate context?

Owners' liability is limited to the amount they invested in the firm.

Stockholders are not responsible for any encumbrances of the firm; in particular, they cannot be required to pay back any debts incurred by the firm.

Which organization forms give their owners limited liability?

Corporations and limited liability companies give owners limited liability.

Limited partnerships provide limited liability for the limited partners, but not for the general partners

What are the main advantages and disadvantages of organizing a firm as a corporation?

Advantages: Limited liability, liquidity, separation of ownership and control.

Disadvantages: Double taxation, infinite life.

See an expert-written answer!

We have an expert-written solution to this problem!

When a pharmaceutical company develops a new drug, it often receives patent protection for that medication, allowing it to charge a higher price. Explain how this public policy of providing patent protection might help align the corporation's interests with society's interests.

Without patent protection, drug manufacturers would be less willing to spend as much on R&D to develop new drugs and drug innovation would be curtailed.

Without patent protection, the developer of the drug would be forced to lower prices to compete with generic manufacturers.

It is in our interest as a society that new and improved drugs be developed, despite the fact that the development and testing process can be a very expensive and lengthy process.

See an expert-written answer!

We have an expert-written solution to this problem!

Corporate managers work for the owners of the corporation. Consequently, they should make decisions that are in the interests of the owners, rather than their own. What strategies are available to shareholders to help ensure that managers are motivated to act this way?

Ensure that employees are paid with company stock and/or stock options.

Mount hostile takeovers.

Ensure that underperforming managers are fired.

Write contracts that ensure that the interests of the managers and shareholders are closely aligned.

See an expert-written answer!

We have an expert-written solution to this problem!