Which of these is a reason why companies are more heavily regulated than sole traders or partnerships?
A) The owners (shareholders) are often removed from the day-to-day running of the business.
B) As companies have limited liability, there is a greater need to protect creditors from financial loss.
C) The members of a company operate under the mutual agency principle.
D) A and B

Question

Quizplus · Accepted Answer

A) The owners (shareholders) of a company often have limited involvement in the day-to-day running of the business. This creates a need for regulatory bodies to oversee activities and ensure compliance with legal requirements.

B) Companies have limited liability, which means that the personal assets of shareholders are protected from financial loss. This protection can lead to increased risk-taking and potential losses for creditors. Therefore, there is a need for greater regulation to protect the interests of creditors.

C) The mutual agency principle applies to partnerships, where each partner is seen as an agent of the partnership and can enter into legally binding contracts on behalf of the partnership. This principle is not applicable to companies.

Therefore, both reasons mentioned in options A and B contribute to the need for greater regulation of companies, making option D the correct choice.

Which of These Is a Reason Why Companies Are More