Cheers Inc. operates as a partnership. Now the partners have decided to convert the business into a regular corporation. Which of the following statements is CORRECTσ
A) assuming cheers is profitable, less of its income will be subject to federal income 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' investors will be exposed to less liability, but they will find it more difficult to transfer their ownership.
E) cheers will find it more difficult to raise additional capital.

Question

Quizplus · Accepted Answer

When Cheers Inc. converts into a regular corporation, the shareholders (ex-partners) will have limited liability, meaning they will only risk losing the amount they invested in the company, rather than being personally liable for the company's debts and obligations. This is a benefit of incorporating and reduces the amount of potential risk for the shareholders.