FIN-515-Managerial Finance Week 1_Capital Formation_Discussion_Question1_Answer

Apr 24th, 2015
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FIN-515-Managerial Finance Week 1_Capital Formation_Discussion_Question1_Answer

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Capital Formation (graded) Discuss capital formation as it relates to the business form and the life cycle of businesses. How would the business form used by the manager/owner impact the firm's ability to raise capital?A partnership is an unincorporated business carried on by two or more individuals or entities for profit. The partnership form often is used by friends or relatives who engage in a business and by groups of investors who want to share the profits, losses, and expenses of an investment such as a real estate project. A partnership is a tax reporting, but not taxpaying, entity. - The partnership as an entity pays no tax. Rather, the income of the partnership passes through to the separate returns of the partners and is taxed directly to them. A partner's tax rate may be lower than a corporation's tax rate for the same level of taxable income.- Partnership income is not subject to double taxation. Although partnership profits are accounted for at the partnership level, they are taxed only at the partner level. - Additional taxes generally are not imposed on distributions to the partners. With limited exceptions, partners can contribute money or property to, or withdraw money or property from, the partnership without recognizing gain or loss. Subject to limitations, partners can use losses to offset income from other sources. A partner's basis in a partnership interest is increased by his or her share of partnership income. This basis adjustment reduces the am

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