Most publicly traded firms operate as corporations. Discuss three advantages of the corporate form

Answer 1

Most publicly traded firms operate as corporations. The corporate form has at least three advantages:

1 . The corporate form provides the owner (shareholder) with limited liability; that is, should the corporation become insolvent, creditors can claim only the assets of the corporate entity and cannot claim the assets of the individual owners. In contrast, to settle debts of general partnerships and sole proprietorships, creditors have a claim on the owners' business and personal assets. In recent years, many partnerships and sole proprietorships have become limited liability companies (LLCs), or limited liability partnerships (LLPs), to limit their owners' personal liability for business debts and other obligations arising from unpleasant surprises involving the business, such as lawsuits filed by customers.

2 . The corporate form allows the firm to raise funds by issuing shares to investors in varying amounts.

3 . The corporate form facilitates the transfer of ownership interests because owners can sell their shares without affecting the ongoing operations of the firm. The transfer is a transaction between shareholders and does not involve the firm whose shares change hands. The corporation has legal status separate from its owners. Investors make capital contributions under a contract between themselves and the corporation.