Multiple Choice
Which of the following is NOT a characteristic of a corporation?
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12. Stockholders' Equity
Characteristics of a Corporation
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Which of the following is an advantage to a corporation issuing stock?
A
It eliminates the need for a board of directors.
B
It allows the corporation to raise large amounts of capital without incurring debt.
C
It guarantees that the corporation will not have to pay taxes on profits.
D
It ensures that all shareholders have equal voting rights.
Verified step by step guidance1
Understand the context: The question is asking about the advantages of a corporation issuing stock. Issuing stock is a way for corporations to raise funds by selling ownership shares to investors.
Eliminate incorrect options: Analyze each option to determine if it aligns with the advantages of issuing stock. For example, issuing stock does not eliminate the need for a board of directors, as corporate governance still requires oversight.
Focus on the correct advantage: Issuing stock allows a corporation to raise large amounts of capital without incurring debt. This is because the funds raised from stock issuance do not need to be repaid, unlike loans or bonds.
Clarify misconceptions: Issuing stock does not guarantee tax exemptions on profits, nor does it ensure equal voting rights for all shareholders. Voting rights depend on the type of stock issued (e.g., common vs. preferred stock).
Conclude: The primary advantage of issuing stock is the ability to raise significant capital without increasing the corporation's debt obligations, which is a key benefit for financial flexibility and growth.
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