Cheers Inc. operates as a partnership. Now the partners have decided to convert the business into a regular corporation. Which of the following statements best describes firm organization?
A) Assuming Cheers is profitable, less of its income will be subject to taxes.
B) Cheers will now be subject to fewer regulations.
C) Cheers' shareholders (the ex-partners) will now be exposed to less liability.
D) Cheers will find it more difficult to raise additional capital.

Question

Quizplus · Accepted Answer

By converting to a regular corporation, Cheers will become a separate legal entity from its shareholders. This means that the shareholders will have limited liability, and their personal assets will not be at risk if the company encounters financial difficulties or is sued. This is one of the chief advantages of incorporating a business.