Five independent situations follow:
1. Kevin Roberts, President and CEO of Hanley Tools Inc., has just been notified that his company has been sued due to the failure of one of its key products. Although the lawsuit is for several million dollars, Kevin is not concerned that he will have to sell his new house to pay damages if his company is unsuccessful in defending itself against the lawsuit.
2. Salik Makkar has just negotiated a borrowing agreement with a bank. The completed borrowing agreement is
a contract between two parties: the bank and the company that Salik works for as the Treasurer.
3. Ping Yu is in the top personal tax bracket due to a significant amount of investment income she earns each year. Ping has just started a new company and has organized it as a publicly held corporation. Sales for the first few years are expected to make her new company eligible for tax incentives and deductions as an active small business.
4. Marion Kureshi incorporated her business, Kureshi Fine Furniture Corporation, in 1974. The business has grown steadily every year, and now employs over 2,000 people. Kureshi Fine Furniture's common shares trade on a public stock exchange. Marion is currently the President of the company; however, due to deteriorating health, Marion can no longer be active in the business. Fortunately, Marion has put plans in place for her daughter to assume her role as President.
5. Matthew Antoine has been working on a new technology to improve cell phone reception in remote rural locations. Matthew knows that a significant amount of funding will be required to purchase the production equipment and inventory to manufacture his new antenna. In order to launch his new business, Matthew plans to organize the business as a publicly held corporation and issue shares on the TSX Venture Exchange.
Instructions
In each case, identify the characteristic being described in the situation that separates a corporation from a proprietorship or partnership, and explain how the situation might be different for a sole proprietor or partnership.
Taking It Further
How does limited liability help investors sell shares in the secondary markets?