[Tutoring Concerns] André and Sasha Want to Go into Business

question 41

Multiple Choice

[Tutoring Concerns] André and Sasha want to go into business together and plan on offering a tutoring service to high school and college students. André proposes that they share control of the business and split profits equally and not bother with a written agreement. Sasha, however, is concerned about being able to pay their debts, since they will have to rent tutoring space, and purchase computers and supplies. She is also concerned about parents and students who may sue if their test scores do not improve. She tells André that she just bought a new boat and car, and that she does not want her assets to be in jeopardy. She tells André that they should form a corporation to shield their personal assets. André, however, tells Sasha that their personal assets are not in danger with his proposal because they are a business and that, furthermore, forming a corporation would result in a tax being imposed twice.
-Which of the following is true regarding André's and Sasha's quest to find the best form of business organization?

• A) An S corporation provides the tax advantages of a partnership but does not avoid personal liability for shareholders.
• B) A limited liability company combines the tax advantages of a partnership with the limited liability of a corporation.
• C) A double sole proprietorship avoids corporate double taxation and also shields assets of the owners from tort claims of third parties although creditors may reach the personal assets of the owners.
• D) An unincorporated cooperative combines the tax advantages of a partnership with the limited liability of a corporation.
• E) A joint venture is a type of undertaking involving joint stock which is treated as a corporation in regard to double taxation and limited liability.

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Definitions:

PMT Function

It is a financial function that calculates the payment for a loan based on constant payments and a constant interest rate.

Rate

A measure or quantity considered in relation to another quantity or measure, often used to describe the speed, frequency, or cost of something.

Nper

A financial function that calculates the number of payment periods for an investment or loan based on constant payments and constant interest rates.

Fv

Future value; a finance function used to calculate the future value of an investment based on periodic, consistent payments and a steady interest rate.