Question

which of the following statements is correct?
corporations face few regulations and more favorable tax treatment than do proprietorships and partnerships.
managers who face the threat of hostile takeovers are less likely to pursue policies that maximize shareholder value compared to managers who do not face the threat of hostile takeovers.
bond covenants are an effective way to resolve conflicts between shareholders and managers.
because of their simplified organization, it is easier for proprietors and partnerships to raise large amounts of outside capital than it is for corporations.
one advantage to forming a corporation is that the owners of the firm have limited liability.

Explanation:

• Corporations face more regulations and less - favorable tax treatment than proprietorships and partnerships.
• Managers under threat of hostile takeovers are more likely to pursue shareholder - value - maximizing policies.
• Bond covenants resolve conflicts between bondholders and shareholders, not between shareholders and managers.
• It is harder for proprietorships and partnerships to raise large amounts of outside capital due to their unlimited liability and smaller scale.
• One key advantage of a corporation is that owners have limited liability, meaning their personal assets are generally protected from business debts.

Answer:

One advantage to forming a corporation is that the owners of the firm have limited liability.