Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

12. Stockholders' Equity

Characteristics of a Corporation

Financial Accounting

12. Stockholders' Equity

Characteristics of a Corporation

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Multiple Choice

Which of the following is an advantage of a corporation?

Direct management by all shareholders

Limited liability for shareholders

Exemption from double taxation

Unlimited life for owners

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Verified step by step guidance

Understand the concept of a corporation: A corporation is a legal entity that is separate from its owners (shareholders). It has distinct characteristics such as limited liability, ability to raise capital, and perpetual existence.

Analyze the term 'limited liability for shareholders': This means that shareholders are only liable for the amount they have invested in the corporation and are not personally responsible for the corporation's debts or legal obligations.

Evaluate the other options: Direct management by all shareholders is not a characteristic of a corporation, as management is typically handled by a board of directors and executives. Exemption from double taxation is incorrect because corporations are subject to double taxation (corporate income tax and shareholder dividend tax). Unlimited life for owners is also incorrect, as the corporation itself has unlimited life, not the owners.

Compare the advantages: Limited liability is a key advantage of a corporation because it protects shareholders' personal assets, making it a safer investment structure compared to sole proprietorships or partnerships.

Conclude that the correct answer is 'Limited liability for shareholders,' as this is a defining feature and significant advantage of the corporate structure.