Which of the following statements best describes firm organization?
A)It is generally more expensive to form a proprietorship than a corporation because a proprietorship requires extensive legal documents.
B)One disadvantage of operating a business as a sole proprietorship is that the firm is subject to double taxation, at both the firm level and the owner level.
C)One advantage of forming a corporation is that equity investors are usually exposed to less liability than in a regular partnership.
D)If a regular partnership goes bankrupt, each partner is exposed to liabilities only up to the amount of his or her investment in the business.

Question

Quizplus · Accepted Answer

Forming a corporation usually results in limited liability for the shareholders, meaning they are only at risk of losing the amount of their investment in the company. Regular partnerships do not offer this protection. Option A is incorrect as a proprietorship is typically simpler and less expensive to set up than a corporation. Option B is incorrect as sole proprietorships are not subject to double taxation. Option D is incorrect as each partner in a regular partnership may be personally liable for the firm's debts, even beyond their initial investment.

Which of the Following Statements Best Describes Firm Organization