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 needsσ
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.

Question

Quizplus · Accepted Answer

The S corporation would allow her to take early losses as deductions against her other income, hence save some taxes. Then, when the firm became profitable, she would receive dividends and pay taxes on them, but the firm itself would avoid corporate taxes and double taxation.

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