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.
What are the main advantages and disadvantages of organizing a firm as a corporation?
A. Disadvantages: Double taxation, infinite life.
B. Advantages: Limited liability, liquidity, infinite life.
C. Advantages: Limited liability, liquidity, separation of ownership and control.
D. Disadvantages: Double taxation, separation of ownership and control.
You are a shareholder in an S corporation. The corporation earns $ 2.44 per share before taxes. As a
pass through entity, you will receive $ 2.44 for each share that you own. Your marginal tax rate is 30 %.
How much per share is left for you after all taxes are paid?
2.44 – (2.44 * 0.30) = 2.44 – (0.732) = 1.708 = 1.71
