Which statement is true regarding corporations?
A) A corporation is not a separate legal entity.
B) A corporation may not be sued.
C) A corporation is created according to federal law.
D) Shareholders may typically be held liable for debts of the corporation.
E) The corporation must pay taxes on profits, and shareholders must pay taxes on dividends they receive from the corporation.

Question

Quizplus · Accepted Answer

Corporations are recognized as separate legal entities from their owners, allowing them to own property, enter into contracts, and be sued. They are typically created under state law, not federal law. Shareholders generally have limited liability, meaning they are not personally liable for the debts of the corporation. The statement about taxation, known as double taxation, is true: corporations pay taxes on their profits, and shareholders pay taxes on the dividends they receive, which are distributed from those profits.

Which Statement Is True Regarding Corporations