Multiple Choice
Which of the following is considered a disadvantage of the corporate form of business organization?
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12. Stockholders' Equity
Characteristics of a Corporation
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Which of the following statements is true of a corporation?
A
A corporation's owners are personally liable for its debts.
B
A corporation is a separate legal entity distinct from its owners.
C
A corporation dissolves automatically upon the death of a shareholder.
D
A corporation cannot issue shares of stock to raise capital.
Verified step by step guidance1
Understand the concept of a corporation: A corporation is a separate legal entity distinct from its owners, meaning it has its own rights and responsibilities under the law.
Clarify the liability aspect: Unlike sole proprietorships or partnerships, the owners (shareholders) of a corporation are not personally liable for the corporation's debts. Their liability is limited to their investment in the corporation.
Examine the continuity of existence: A corporation does not dissolve automatically upon the death of a shareholder. It continues to exist as a legal entity unless formally dissolved.
Review the ability to raise capital: Corporations can issue shares of stock to raise capital, which is one of their key advantages compared to other business structures.
Identify the correct statement: Based on the above clarifications, the correct statement is 'A corporation is a separate legal entity distinct from its owners.'
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