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 a main advantage of organizing a firm as a corporation?

Exemption from double taxation

Direct management by all shareholders

Limited liability for shareholders

Unlimited liability 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 its own rights and responsibilities, and its structure provides certain advantages and disadvantages.

Review the concept of limited liability: Limited liability means that shareholders are only responsible for the debts and obligations of the corporation up to the amount they have invested. Their personal assets are protected from corporate liabilities.

Compare limited liability to unlimited liability: Unlimited liability, which is common in sole proprietorships and partnerships, means that owners are personally responsible for all debts and obligations of the business, potentially risking their personal assets.

Analyze the advantages of a corporation: One of the main advantages of organizing a firm as a corporation is the limited liability for shareholders. This protects shareholders from being personally liable for the corporation's debts beyond their investment.

Conclude why limited liability is the correct answer: Among the options provided, limited liability for shareholders is a key advantage of a corporation, as it offers financial protection to the owners while allowing the corporation to operate as a separate legal entity.