Tom and Bob Are Equal Shareholders of a Profitable Company

question 2

Multiple Choice

Tom and Bob are equal shareholders of a profitable company with only active business income. The company is growing and dividend payouts are increasing. The two men have heard that 'holding corporations' might suit their needs. Which of the following would apply?

• A)Dividends would flow from the operating company to Tom and Bob, and then to the holding corporations.
• B)The establishment of holding corporations would allow Tom and Bob to access the profits of the operating company for personal expenditures without paying a second level of tax.
• C)Dividends received by the holding companies from the operating company must be invested in the same ventures.
• D)The holding companies would receive the dividends from the operating company, free of tax, to be invested in ventures of Tom and Bob's separate choices.

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