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4) Corporate shareholders are exposed to unlimited liability, and this
factor may be compounded by the tax disadvantages of incorporation.
5) There is a tax disadvantage to incorporation, and there is no way any
corporation can escape this disadvantage, even if it is very small
Question 5
Which of the following statements is CORRECT?
1) One disadvantage of operating as a corporation rather than as a
partnership is that corporate shareholders are exposed to more personal
liability than partners
2) There is no good reason to expect a firm's stockholders and
bondholders to react differently to the types of new asset investments a
firm makes
3) Bondholders are generally more willing than stockholders to have
managers invest in risky projects with high potential returns as opposed
to safer projects with lower expected returns
4) Stockholders are generally more willing than bondholders to have
managers invest in risky projects with high potential returns as opposed
to safer projects with lower expected returns
5) Relative to sole proprietorships, corporations generally face fewer
regulations, and this makes it easier for corporations to raise capital
Question 6