You and four friends are opening a studio to create new Xbox games. You hope to raise $500,000 early on by selling equity in the business. You'll then reinvest profits back into the business to drive growth and minimize taxes. Within five years, you hope to sell the majority of the business to an angel investor or venture capital firm. Which form of business best fits your needs?
A) sole proprietorship
B) partnership
C) corporation
D) pass-through proprietorship

Question

Quizplus · Accepted Answer

A corporation is the best choice for a business that needs to sell equity to raise money. This will allow the studio to have shareholders who are not involved in the day-to-day operations of the business, but can provide funding and expertise. Additionally, a corporation has limited liability protection for its owners, which is important in a high-risk industry such as game development. Lastly, a corporation can facilitate the sale of the business to outside investors by allowing for the transfer of ownership through the sale of shares.

You and Four Friends Are Opening a Studio to Create