University of Washington - AP 100 Econ stydy plan for exam 2

The three major types of firms in the United States are called Sole proprietorships, partnerships, and corporations Limited liability means that Shareholders in a corporation cannot lose more than their investment in the firm The government grants limited liability to the owners of corporations To limit shareholder risk and thus encourage investment in corporations Limited liability becomes more important for firms trying to raise funds from a large number of investors, rather than from a small number of investors, because Investors that make a small investment in a firm may be unwilling to risk all their personal assets if the firm fails What do we mean by the separation of ownership from control in large corporations? Shareholders own the corporation, but it is controlled by managers How is the separation of ownership from control related to the principal-agent problem? The agents (managers) may pursue their own interests rather than the interests of the principals (shareholders) Suppose that shortly after graduating from college you decide to start your own business. Assuming you are starting a small business and want it to be your business a lone which category of firm are you most likely to st...

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