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Principles of Microeconomics - Essay Example

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Principles of Microeconomics Word Count: 3000 Dated: July 24, 2011 Q1. Larry, Moe and Curly decided to start a business selling used cars together. Discuss the advantages and disadvantages of operating the business as a partnership and a corporation. Ans: When deciding to operate as a partnership Moe, Curly and Larry will have several advantages as well as disadvantages…
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Download file to see previous pages Various distinctive skills brought by the partners can be availed which assist in advancing the progressions of the business. Further, the numerous responsibilities of the business can be efficiently carried out by distributing them among partners. (Hobday I.) Apart from numerous benefits there are some disadvantages faced by the partners. In this type of organization the partners do not possess limited liability and are therefore liable for to repay debts owed by the business. Most importantly, the profits generated are to be shared among the partners, leading to minimized profits per partner. Additionally, disagreements are likely to occur in the business due to the existence of different decisions taken by all partners. Significantly, the life of partnership depends upon the life of its owners. This means that the retirement or death of any one of the partners results in the partnership being ended. The type of management is decentralized of this business which is ensures that the business is not maintained after it is sold off. (Alfred M., 1920) Corporation has numerous pros and cons. The most vital advantage of it is the limited liability enjoyed by the stockholders as the stockholders are a separate legal unit from the corporation which protects them from the liabilities and debts of the business. Additionally, the life of the corporation is independent of the life of its owners. Consequently, the business will keep on working even if any of its owners die or are retired. Moreover, in this type of business the retirement and insurance plans are easy to establish. In addition to this, it is very easy to raise large sums of capital for this type of business by selling stocks. This business involves centralized management which ensures that the business is maintained even after it is sold off. Further, the ownership of this type of organization is convenient and easy to either sell or transfer by selling or transferring stocks. (Alfred M., 1920) On the contrary, the significant disadvantage of corporation is the probability of taxes being charged twice. This means that the profits generated in a corporation are firstly taxed as income of the corporation and then secondly as income of the shareholder. The formation of corporation is very expensive and complex as several legal formalities are involved in the establishment of a corporation. (Alfred M., 1920) b. The three figure that with Moe's management experience, Larry's salesmanship and Curly's vast fortune, they have the makings for a successful business. Moe and Larry would run the day to day operations and manage the business, while Curly would supply the capital and stay out of management. Further, Curly wants to limit his personal liability to the amount he will invest in the company and does not really care what the tax consequences are. Based on these facts, which form of organization would be best for these guys and why? Ans: The best type of business organization for these guys can be limited partnership. This is due to the fact that Curly wishes to enjoy limited liability therefore, being limited partner he can invest large sums of capital into the business and thus protecting himself from paying debts of the business. While the other two partners, Moe and Larry being ordinary partners will invest in the business but will be liable to repay any debts owed by the business. Along with this they will be ...Download file to see next pagesRead More
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