Which of the following statements is false with respect to the major forms of businesses and the corporate governance risk inherent in each of them?

A. A principal-agent conflict exists with all business forms.
B. A sole proprietorship possesses the fewest forms of corporate governance risk of all the business forms possible.
C. With partnerships, an effective corporate governance system is possible if the partners reach agreements with respect to the rights and responsibilities of each partner.
D. Among all the business forms, the need for an effective governance system is perhaps most important for corporations.

Correct Answer: A

While with sole proprietorship and partnerships the owners take an active role in managing the business, with corporations the role of owner and manager are usually separated, thus creating a principal-agent conflict. Thus, an effective corporate governance system is required so that the interests of shareholders are held in management decisions.