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1) The fact that the owner of a proprietary business has unlimited personal liability for the...

1) The fact that the owner of a proprietary business has unlimited personal liability for the business’ debts, and the owner will have some difficulty raising new capital, are both considered to be disadvantages of the proprietary business structure.

A. True

B. False

2) The decision in how to structure a business really does not impact the income and wealth of its owners, the structure is a very minor issue.

A. True

B. False

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Answer #1

1) The given statements are true.

In case of sole proprietorship, the owners have unlimited liability and due this they do not get easy access to capital as there is unlimited liability of lawsuits and business debts . In case of sole proprietorship as there is no distinction between business and personal liability.

Yes both are disadvantages of sole proprietorship.

Correct option is option A.

2) Capital structure is one of the key and vital decisions to be taken by the firm. All firms needs capital to finance it's operations, the more debt in the capital structure means higher financing costs due to higher interest expense.

The optimal capital structure leads to maximising the value of the firm which leads to higher wealth and income for the owners due to higher stock prices.

Correct option is option A.

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