Which of the following statements is CORRECT?
A) One advantage of forming a corporation is that equity investors are usually exposed to less liability than they would be in a partnership.
B) Corporations face fewer regulations than sole proprietorships.
C) One disadvantage of operating a business as a sole proprietor is that the firm is subject to double taxation, because taxes are levied at both the firm level and the owner level.
D) It is generally less expensive to form a corporation than a proprietorship because, with a proprietorship, extensive legal documents are required.
E) If a 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

One advantage of forming a corporation is that the liability of equity investors is limited to the amount of their investment. Partnerships do not offer this protection, as partners can be held personally liable for the debts of the partnership.

Option B is incorrect as corporations face more regulations than sole proprietorships.

Option C is incorrect as a sole proprietorship is not subject to double taxation.

Option D is incorrect as forming a corporation is more expensive than a proprietorship, as extensive legal documents are required for incorporation.

Option E is incorrect as partners can be held personally liable for the debts of the partnership, even beyond their investment.

Which of the Following Statements Is CORRECT