Which of the following is an advantage of the corporate form of business

Which of the following is an advantage of the corporate form of​ business?

A. separation of ownership and management

B. low​ start-up costs

C. limited liability of stockholders

D. less degree of government regulation

Answer

General guidance

Concepts and reason
The corporate form of business: It is a form of business that has a separate legal entity. It means corporate identity is different from its owner. It has all the legal rights as that of an individual except the right to vote. For example, a corporate entity can sue or can be sued.

Fundamentals

Common stock: It is equity of the company that is issued by the company to the general public. The common stockholders are the real owners of the company; they have a right on the dividend that is distributed by the company.

Sole proprietorship: If a business is owned and operated by a single individual then it is known as a sole proprietorship, it is the easiest form of business to establish.

Partnership: When two or more person come together to form a business is called partnership. The advantage of partnership over sole proprietorship is spreading of risk across various partners.

Step-by-step

Step 1 of 2

Ownership and management can be separated in other forms of business as well. So this is an option is incorrect.

The startup cost of a corporate is never low. So this is an option is incorrect.

Degree of government regulation is more in the corporate forms of business. So this is an option is incorrect.

Ownership and management can be separated in sole proprietorship and partnership. As these forms of business have limited resources, it is not recommended but still a sole proprietor or a partnership firm can hire managers, thus separating the ownership from management.

It is not cheap to form a corporate. Formation of a corporation requires heavy fund as many legal requirements such as cost to incorporate needed to be fulfilled. Also maintaining and winding up of a company is extremely costing.

A large number of rules and regulations are there for corporations. Even for its internal working, it is required to follow government rules. There are many formalities given by the government to form a corporation. Moreover, the heavy penalty is charged for the non-compliance of the rules and regulations.

Step 2 of 2

Limited liability is the big advantage of the corporation as stockholders are only limited to the amount they invested in the company.

The advantage of a corporation is that liability of stakeholders is limited.


The biggest advantage of corporation in comparison to other forms of buisness is the limited liability of the owners of the company or stockholders. Stockholder’s liability has an upper bound which is equal to the nominal value of shares purchased by shareholders. In case of partly paid shares, the stock holder is liable for only the amount unpaid by him. Thisencourages many individuals to invest in corporations.

Answer

The advantage of a corporation is that liability of stakeholders is limited.

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