Multiple Choice
Which of the following best explains why a corporation is considered the most important form of business organization?
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12. Stockholders' Equity
Characteristics of a Corporation
Multiple Choice
Which of the following is a primary advantage of organizing a firm as a corporation?
A
Profits are taxed only once at the shareholder level
B
Ownership is difficult to transfer
C
The corporation dissolves automatically upon the death of an owner
D
Limited liability for shareholders
Verified step by step guidance1
Understand the concept of 'limited liability': In a corporation, shareholders are only liable for the amount they have invested in the company. Their personal assets are protected from the company's debts and legal obligations.
Compare the advantages of a corporation to other business structures: Unlike sole proprietorships or partnerships, corporations provide a shield for shareholders against personal liability for business losses or lawsuits.
Analyze the incorrect options: Profits being taxed only once applies to partnerships or sole proprietorships, not corporations. Ownership being difficult to transfer is not true for corporations, as shares can be bought and sold easily. Corporations do not dissolve automatically upon the death of an owner; they have perpetual existence.
Focus on the correct answer: The primary advantage of organizing a firm as a corporation is the limited liability for shareholders, which ensures their personal assets are not at risk.
Summarize the reasoning: The structure of a corporation is designed to protect shareholders while allowing the business to continue operating independently of individual owners.
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