Principles of Managerial Finance, 15th Edition

1.3 Organizational Forms, Taxation, and the Principal–Agent Relationship

1. LG5

2. LG6

From a legal perspective, businesses can organize themselves in a variety of ways. Different organizational forms involve various tradeoffs related to ownership, control, taxation, liability, and other factors. In this section, we examine the pros and cons of alternative legal forms for businesses.

Legal Forms of Business Organization

One of the most important decisions all businesses confront is how to choose a legal form of organization. This decision has very important financial implications. How a business is legally organized influences the risks borne by the firm’s owners, how the firm can raise money, and how the firm’s profits will be taxed. The three ...