Question

The stocks of Novelties-R-Us, a toy store, are completely owned by the Garcias. When the family elected to move from a sole proprietorship to a corporation, the greatest concern was ___________.

a) Limited Liability
b) Double Taxation
c) Loss of Control
d) Market Competition

Answer 1

The Garcias family's greatest concern about moving from a sole proprietorship to a corporation was probably the loss of control since corporate structure can dilute ownership control when additional shareholders are involved.

Step-by-step explanation:

When the Garcias family decided to transition from a sole proprietorship to a corporation for their toy store, Novelties-R-Us, their greatest concern was likely loss of control. As a sole proprietorship, they had complete control over the decisions of the business with the potential downside of unlimited liability, meaning their personal assets were at risk if the business failed. However, as a corporation, while they gained the benefit of limited liability, meaning their personal assets were protected, there is a trade-off in potentially losing some control of the business. This is because when a company incorporates, it may issue stock and bring in additional shareholders, thus diluting the original owners' authority.