11. Basically there are three fundamental forms of business organizations, namely, “Proprietorship”, “Partnership”, and “Corporation”. While the advantages of the first two are: Ease and low cost of formation; Advantage of corporation are limited liability, indefinite life, ease of ownership transfer, and access to capital markets. Disadvantage of the first are: Barriers in obtaining funds; Unlimited personal liability for debts; and limited life. Disadvantages of the second are: Unlimited liability; limited life; difficulty in transferring ownership; and difficulty in obtaining funds. Disadvantage of the third are: Double taxation of earnings; complex and time consuming reports and foundation process.
13. Since the ownership in a corporation is widely dispersed, and thus individual stockholders have little power, it may be believed by managers that it is not necessary to endeavor to maximize company profits. Since the managers usually own only a small fraction of the corporation’s stock, their interest may not be served best by maximizing the value of the corporation. Thus they may be more interested in maximizing their own incomes and perquisites. They may also not take prudent risks to maximize returns, since a severe reversal in business fortunes could cause them to lose their positions. Not taking the appropriate risks may result in rather mediocre but still satisfactory shareholder returns.