Lecture 1 - An Overview of Financial Management 2023 Update Solution

What are the forms of business organisations? - ANS--Proprietorship -Partnership -Corporation -Limited Liability(Combination of partnership and corporation) What are the advantages and disadvantages of a proprietorship and partnership? - ANS-+ve : -Easily and inexpensively formed -Subject to few government regulations -Subject to lower income taxes than corporations -No corporate tax -ve : -Unlimited personal liability -Limited life of business -Difficult to raise capital Is it always preferable to set up a corporation over a sole proprietorship in Singapore where corporations are not subject to double taxation? - ANS-Depends on which tax bracket the company falls in Corporations are subject to corporate tax of 17% When income is beyond $160,000 personal tax rate is 18% which exceeds corporate tax When entity is earning beyond $160,000 it would be more beneficial for them to change to a corporation What are the advantages and disadvantages of a corporation? - ANS-+ve : -Easy transfer of ownership -Unlimited life -Limited liability -Ease of raising capital -ve : -Cost of setting up and report filing -Double taxation : -Corporation's earnings taxed -Dividend earnings taxed again as personal income What are the advantages and disadvantages of limited liabilility? - ANS-+ve : -Limited liability like corporations -Taxed like partnerships -Votes in proportion of their ownership interest Continues...