Which of the following statements is true of a corporation?
A)The liabilities of the corporation can be paid by the personal assets of the shareholders.
B)Shares of stock cannot be readily bought and sold by investors on the open market.
C)Shareholders are authorized to sign contracts or make business commitments on behalf of the corporation.
D)Corporations pay income tax on corporate earnings, and shareholders pay personal income tax on corporate dividends and gains from sale of stock.

Question

Quizplus · Accepted Answer

Corporations pay income tax on their earnings at the corporate level, and shareholders pay personal income tax on corporate dividends and gains from the sale of stock. This is known as double taxation. A is incorrect because, in general, the personal assets of shareholders cannot be used to pay the liabilities of the corporation, except under certain circumstances such as fraud or illegal activities. B is incorrect because shares of stock in a corporation can be bought and sold on the open market, making them attractive to investors. C is incorrect because shareholders elect a board of directors, who are responsible for making business decisions and signing contracts on behalf of the corporation.

Which of the Following Statements Is True of a Corporation