61. Which of the following is not characteristic of a corporation?
- A. The financial loss that a stockholder may suffer from owning stock in a public company is limited.
- B. Cash dividends paid by a corporation are deductible as expenses by the corporation.
- C. A corporation can own property in its name.
- D. Corporations are required to file federal income tax returns.
62. Characteristics of a corporation include
- A. shareholders who are mutual agents
- B. direct management by the shareholders (owners)
- C. its inability to own property
- D. shareholders who have limited liability
63. One of the main disadvantages of the corporate form is the
- A. professional management
- B. double taxation of dividends
- C. charter
- D. corporation must issue stock
64. A disadvantage of the corporate form of business entity is
- A. mutual agency for stockholders
- B. unlimited liability for stockholders
- C. corporations are subject to more governmental regulations
- D. the ease of transfer of ownership
65. Under the corporate form of business organization
- A. ownership rights are easily transferred.
- B. a stockholder is personally liable for the debts of the corporation.
- C. stockholders’ acts can bind the corporation even though the stockholders have not been appointed as agents of the corporation.
- D. stockholders wishing to sell their corporation shares must get the approval of other stockholders.
66. Those most responsible for the major policy decisions of a corporation are the
- A. management.
- B. board of directors.
- C. employees.
- D. stockholders.
67. Which one of the following would not be considered an advantage of the corporate form of organization?
- A. Government regulation
- B. Separate legal existence
- C. Continuous life
- D. Limited liability of stockholders
68. Which of the following is not true of a corporation?
- A. It may enter into binding legal contracts in its own name.
- B. It may sue and be sued.
- C. The acts of its owners bind the corporation.
- D. It may buy, own, and sell property.
69. The ability of a corporation to obtain capital is
- A. less than a partnership.
- B. about the same as a partnership.
- C. restricted because of the limited life of the corporation.
- D. enhanced because of limited liability and ease of share transferability.
70. Which of the following statements concerning taxation is accurate?
- A. Corporations pay federal income taxes but not state income taxes.
- B. Corporations pay federal and state income taxes.
- C. Only the owners must pay taxes on corporate income.
- D. Corporations pay income taxes but their owners do not.
The correct answer and explanation is:
Correct Answers:
- B – Cash dividends paid by a corporation are not deductible as expenses by the corporation.
- D – Shareholders have limited liability.
- B – The double taxation of dividends is a main disadvantage of corporations.
- C – Corporations are subject to more governmental regulations.
- A – Ownership rights are easily transferred.
- B – The board of directors is responsible for major policy decisions.
- A – Government regulation is not an advantage.
- C – The acts of owners do not bind the corporation.
- D – The ability to obtain capital is enhanced due to limited liability and ease of transfer.
- B – Corporations pay both federal and state income taxes.
Explanation:
A corporation is a distinct legal entity separate from its owners, providing advantages such as limited liability, ease of raising capital, and perpetual existence. However, it also has disadvantages, including double taxation and extensive regulations.
One key characteristic of corporations is limited liability (Questions 61, 62, 65). Stockholders are not personally liable for corporate debts, meaning they can only lose their investment, not personal assets. This makes corporations attractive to investors.
Another important aspect is corporate governance (Questions 66, 67). The board of directors, elected by stockholders, makes major policy decisions, ensuring professional management and strategic oversight.
Corporations also have a separate legal identity (Questions 68, 69). They can own property, enter into contracts, and be sued independently of their owners. This independence allows corporations to accumulate resources and operate efficiently.
A major disadvantage is double taxation (Questions 63, 70). Corporations pay taxes on profits, and when profits are distributed as dividends, stockholders pay taxes again on the same income.
Additionally, government regulations (Questions 64, 67) are stricter for corporations than for sole proprietorships or partnerships. Compliance with financial reporting, taxation, and legal obligations requires significant administrative effort.
Despite these challenges, the corporate structure remains one of the most effective for large-scale business operations due to its ability to raise capital (Question 69). The ease of transferring ownership (stock trading) allows corporations to attract investors and expand more effectively than other business entities.