When the owner runs the business:
A) he does not bear the full cost of a bad decision.
B) there is not a principal-agent problem.
C) he does not receive the full benefit nor the full cost of any decision.
D) he has only limited liability for the actions of the business.

Question

Quizplus · Accepted Answer

When the owner runs the business, there is a direct alignment between ownership and control, eliminating the principal-agent problem which arises when the interests of the owner (principal) and the manager (agent) do not align. The owner directly bears the costs and benefits of decisions, and unless the business structure specifically limits liability (e.g., a corporation), the owner typically has unlimited liability for the actions of the business.

When the Owner Runs the Business