Small Corporation,a new start-up small business corporation,is owned by Samantha and Dave.Additional funding is needed from the two shareholders,and they are weighing equity versus debt financing.One consideration is the tax consequences to the owners if the company fails and goes through bankruptcy,with both the stock and debt becoming worthless.In such case,the owners would be able to deduct the losses,and achieve tax savings,sooner if the company finances through additional equity.

Question

Quizplus · Accepted Answer

If the company finances through additional equity and fails, the owners can deduct the losses on their tax returns immediately, whereas with debt financing the tax loss may take longer to deduct.

Small Corporation,a New Start-Up Small Business Corporation,is Owned by Samantha