Which of the following statements is true concerning domestic expansion of a business?
A)Cash funding requirements will be lower to establish a new corporation than a corporate division if the expansion activity incurs substantial start-up losses.
B)Cash funding requirements will be higher to establish a new corporation than a corporate division if the expansion activity incurs substantial start-up losses.
C)Obligations of a new division will have no impact on the founding corporation.
D)The main advantage of incorporating an expansion activity is the use of start-up losses from the new corporation against income from the founding corporation.

Question

Quizplus · Accepted Answer

When establishing a new corporation for domestic expansion, there is typically a higher cash funding requirement compared to establishing a corporate division. This is because a new corporation must start from scratch with obtaining necessary licenses, permits, equipment, and personnel, whereas a corporate division can rely on existing resources and infrastructure from the parent company. Additionally, the obligations of a new division can have an impact on the founding corporation, particularly with regards to liability and financial performance. While incorporating an expansion activity can provide tax advantages, the main advantage is not related to using start-up losses from the new corporation against income from the founding corporation.

Which of the Following Statements Is True Concerning Domestic Expansion