Question

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 CORRECT?
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.

Answer 1

Answer:

Option (C) " Cheers’ shareholders (the ex-partners) will now be exposed to less liability "

Explanation:

In the partnership all the partners are responsible for the debts and liabilities occurred to the firm.

But here, in the case of a corporation, the company itself behaves as a separate entity. Therefore the corporation is itself held responsible for all its debts and liabilities.

Thus, the individuals are not held responsible for any liabilities.