Jane Doe, Who Has Substantial Personal Wealth and Income, Is

question 38

Multiple Choice

Jane Doe, who has substantial personal wealth and income, is considering the possibility of starting a new business in the chemical waste management field.She will be the sole owner, and she has enough funds to finance the operation.The business will have a relatively high degree of risk, and it is expected that the firm will incur losses for the first few years.However, the prospects for growth and positive future income look good, and Jane plans to have the firm pay out all of its income as dividends to her once it is well established.Which of the legal forms of business organization would probably best suit her needs?

• A) Proprietorship, because of ease of entry.
• B) S corporation, to gain some tax advantages and also to obtain limited liability.
• C) Partnership, but only if she needs additional capital.
• D) Regular corporation, because of the limited liability.
• E) In this situation, the various forms of organization seem equally desirable.

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Definitions:

Capital Income

The income earned from investments in assets like stocks, bonds, and real estate, excluding labor income.

Dividends

Payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders.

Marginal Product

The additional output resulting from one more unit of a given input, holding all other inputs constant, in the production process.

Capital Owners

Individuals or entities that own assets that can be used to produce goods or services and potentially generate income.