Answer and Explanation: The correct answer is: a) in sole proprietorships.
How might agency problems arise in partnerships?
Agency problems arise when incentives or motivations present themselves to an agent to not act in the full best interest of a principal. Through regulations or by incentivizing an agent to act in accordance with the principal’s best interests, agency problems can be reduced.
What is the main problem with sole proprietorship and partnership?
A second disadvantage is the fact that a sole proprietor must fund, manage and carry the business on his own. The personal liability issue also applies to partnerships—both partners are held equally liable or according to their percentage ownership for any debts or obligations.
In which form of business organization is a agency problem most likely to occur?
Answer and Explanation: The answer is D) Corporation . The more removed the owner is from the manager, the higher the agency problems. Corporations are made up of an unlimited number of owners and must elect a board of directors to represent their interests.
What is the major disadvantage of a sole proprietorship or a partnership?
Unlimited Liability
The Disadvantage of a Sole Proprietorship and a Partnership Is Unlimited Liability.
Can sole proprietorships be vulnerable to agency costs?
True. A sole proprietorship is a business entity that is run by a single individual. Therefore, it is true that agency costs can be avoided when we choose this type of business.
In which of the following relationships is an agency conflict problem Least likely to arise?
In business, it usually refers to a conflict of interest between management and stockholders. Since a sole proprietorship is a type of business entity owned by one person, agency issues would be least likely to arise.
What is better sole proprietorship or partnership?
A sole proprietor is limited to money he can invest in the business, loans from family and friends and third-party credit. Partnerships enable you to share the financing and operational burden. You give up equity in your business, but you gain additional resources that can help the business expand more quickly.
What problems might a sole proprietor face?
Sole proprietors are held personally responsible for any lawsuits, debts and other obligations that may arise while operating the business. This means a sole proprietor could potentially lose their car, home, jewelry and other personal assets if the company gets sued, or has debts beyond the company’s assets.
What’s the difference between sole proprietorship and partnership?
A sole-proprietorship has one owner who has unlimited liability for the business. A partnership involves two or more people who combine resources for the business and share profits and losses. A corporation is considered to be a separate legal entity from its shareholders. For tax purposes a corporation is a “Person”.
Which of the following is the best example of an agency problem?
One particularly famous example of the agency problem is that of Enron. Enron’s directors had a legal obligation to protect and promote investor interests but had few other incentives to do so.
Which of the following is least likely to represent an agency problem?
Which of the following is least likely to represent an agency problem? Executive incentive compensation plans.
Which of the following are examples of agency problems?
C) Overconsumption of luxuries leads to non-efficient utilization of resources and hence is an agency problem.
What are 3 disadvantages of a partnership?
Disadvantages of a Partnership
- Liabilities. In addition to sharing profits and assets, a partnership also entails sharing any business losses, as well as responsibility for any debts, even if they are incurred by the other partner.
- Loss of Autonomy.
- Emotional Conflict.
- Future Selling Complications.
- Lack of Stability.
What is probably the greatest disadvantage of a partnership?
There are disadvantages to general partnerships, principally liability. General partners are personally liable for the business debts and liabilities. Each partner is also liable for the debts incurred by the actions of other partners.
What is potentially the biggest advantage of a small partnership over a sole proprietorship?
What is potentially the biggest advantage of a small partnership over a sole proprietorship? Unlimited liability.
Do you think agency problems are likely to be severe or less severe in partnerships and sole proprietorships than in corporations Why or why not?
This is called the agency problem. For sole proprietorship and the partnership, this agency problem is not a serious issue because their managers are also their owners. Corporations suffer from this problem because the owners of the corporation and the managers of the corporation are separated from each other.
Why do agency costs arise?
Agency costs typically arise in the wake of core inefficiencies, dissatisfactions, and disruptions, such as conflicts of interest between shareholders and management. The payment of the agency cost is to the acting agent.
What is agency cost problem?
Agency costs are further subdivided into direct and indirect agency costs. There are two types of direct agency costs: Corporate expenditures that benefit the management team at the expense of shareholders. An expense that arises from monitoring management actions to keep the principal-agent relationship aligned.
Which of the following would be considered an agency problem quizlet?
Which of the following would be considered an Agency Problem? The company is unlikely to make its upcoming interest payments.
What are the two types of agency problems?
We focus on two types of agency conflicts: controlling-minority shareholders conflicts and shareholder-bondholder conflicts.