Answer to Question #285747 in Economics of Enterprise for Charlton

Question

21. Define the significance of making a business a “limited liability entity.”

22. Who is responsible for the wrongful acts of a businesses employee? Under what circumstances would be employee be personally liable? Under what circumstances would the owners of the business be personally liable?

23. 5. How does an entrepreneur determine which form of entity to adopt for his or her business?

24. Under what circumstances is it most beneficial for a company to self-fund or obtain debt financing to reach a particular milestone?

25. Describe what is meant by the term “Employee Stock Option plan.” How can an entrepreneur use such a plan to build a new venture?

Answer 1

Solution:

21.). The significance of making a business a limited liability entity is to shield the members from personal liability when things go south. The corporation exists as a separate legal entity. This protects members and owners from being held personally liable for the business's operations and debts.

 

22.). The employer is responsible for the wrongful acts of a business employee under vicarious liability.

 

23.). An entrepreneur determines which form of entity to adopt for his or her business through cost analysis, budget, risk tolerance, entrepreneurship ability, source of financing, profits, and taxation.

 

24.). A company may want to self-fund or obtain debt financing to reach a particular milestone when seeking business expansion, running business operations, or purchasing new equipment.

 

25.). Employee Stock Option Plans (ESOPs) are a type of employee benefit plan. It is given to employees by the company in order to encourage employee ownership in the company. Thus, an ESOP is a scheme in which a company proposes to increase its subscribed share capital by issuing additional shares at a predetermined rate to its employees.

An entrepreneur can use the funds paid by employees for the ESOPs to expand the business to new heights, purchase new equipment, purchase stock, and pay debts due.