Business Degree Certification Practice Test

Which type of association should Green choose for his new lawn mower manufacturing company to protect personal assets and retain control?

1. Corporation

2. General partnership

3. Limited partnership

4. Member-managed limited-liability company

The correct answer is: Corporation

Choosing a corporation as the type of association for Green's new lawn mower manufacturing company is advantageous for several reasons. A corporation is a distinct legal entity, separate from its owners, which provides liability protection for its shareholders. This means that if the corporation faces legal issues or debts, Green's personal assets would generally be shielded from those liabilities, protecting his personal finances. Additionally, forming a corporation allows Green to retain a significant level of control over the business. As the sole shareholder or through a controlled number of shares, he can make decisions regarding the business operations while still enjoying the benefits of limited liability. This structure is preferred for entrepreneurs who want to ensure their personal assets are not at risk while maintaining a strong influence over their company's governance. Furthermore, corporations often have advantages in terms of raising capital through the sale of stock, which can be crucial for a manufacturing business that may require substantial upfront investment for equipment and materials. In contrast, the other options present more risk to personal assets or dilute control in ways that may not align with Green's goals. Therefore, establishing a corporation aligns well with the objectives of asset protection and control for a business owner like Green.