Multiple Choice
Which of the following is an attractive benefit of a corporation?
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12. Stockholders' Equity
Characteristics of a Corporation
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Which of the following is considered a disadvantage of the corporate form of business organization?
A
Double taxation of earnings
B
Ability to raise large amounts of capital
C
Limited liability of shareholders
D
Continuous existence regardless of ownership changes
Verified step by step guidance1
Understand the corporate form of business organization: Corporations are separate legal entities that provide certain advantages, such as limited liability for shareholders and the ability to raise large amounts of capital.
Review the concept of double taxation: In a corporate structure, earnings are taxed at the corporate level, and when dividends are distributed to shareholders, they are taxed again at the individual level. This is known as double taxation.
Compare the options provided: Evaluate each option to determine which one represents a disadvantage. For example, 'Ability to raise large amounts of capital' and 'Limited liability of shareholders' are advantages, not disadvantages.
Focus on the correct answer: Double taxation of earnings is a disadvantage because it reduces the net income available to shareholders and can be seen as a financial burden.
Conclude the reasoning: The correct answer is 'Double taxation of earnings,' as it is the only option that represents a disadvantage of the corporate form of business organization.
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