Chapter 8

Tommy and David have turned their firm from a partnership into a private limited company. Which of the following statements is correct?

• They have a higher incentive to work as the profits tax rate is lower.

• The firm can still exist even if one of the owners goes bankrupt.

• The size of the firm will increase.

• The financial conditions of the firm have to be disclosed to the public.

According to the above table, which of the following descriptions of Firm A and Firm B is correct?

• Firm A is at a greater risk of being taken over by another firm than Firm

• Firm A is a legal entity while Firm B is not.

• Both firms are subject to the same profits tax rate.

• Firm A is required to disclose its financial status to the public while Firm B is not.

If a partnership is turned into a private limited company,

 

            (1) the company will become an independent legal entity

            (2) the company will be at higher risk of being taken over.

            (3) the company will pay a higher profits tax rate.

            (4) the number of owners will increase.

• (1) and (3) only

• (1) and (4) only

• (2) and (3) only

• (2) and (4) only

Which of the following statements about partnership and sole proprietorship is correct?

 

       

• A. Partnership has better continuity than sole proprietorship.

•         B. Partnership has less flexibility in decision making than sole proprietorship.

•         C. Partnership has more capital than sole proprietorship.

•         D. Partnership enjoys more economies of scale than sole proprietorship.

A firm has an independent legal entity, but the owners cannot transfer their ownership without the consent of the other owners. When the owners want to expand the firm’s business, they can ________.

        (1)   use the retained profit of the firm

        (2)   issue shares to the public to raise capital

        (3)   borrow from friends to raise capital

• (1) and (2) only

• (1) and (3) only

• (2) and (3) only

• (1), (2) and (3)

Alan and his partners turned their partnership into a private limited company. After the change, the firm         will

• have more capital for development.

• have a lower average production cost.

• enjoy a lower profits tax rate.

• have a separate legal entity.