Multiple Choice
Which type of business organization has the ability to sell stock to raise capital?
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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
Continuous existence regardless of ownership changes
B
Limited liability of shareholders
C
Ability to raise large amounts of capital
D
Double taxation of corporate earnings
Verified step by step guidance1
Understand the corporate form of business organization: Corporations are separate legal entities that provide benefits such as limited liability for shareholders, the ability to raise large amounts of capital, and continuous existence regardless of ownership changes.
Identify the concept of double taxation: Double taxation occurs when corporate earnings are taxed at the corporate level and then taxed again when distributed to shareholders as dividends.
Compare the advantages and disadvantages: While corporations offer benefits like limited liability and capital-raising capabilities, double taxation is considered a disadvantage because it reduces the net income available to shareholders.
Analyze why double taxation is unique to corporations: Unlike sole proprietorships or partnerships, corporations are taxed as separate entities, leading to this additional layer of taxation.
Conclude that double taxation of corporate earnings is a disadvantage of the corporate form of business organization, as it impacts the financial returns to shareholders.
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