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Homework answers / question archive / Which of the following statements is correct? a
Which of the following statements is correct?
a. It is generally less expensive to form a corporation than a proprietorship because with a proprietorship, extensive legal documents are required.
b. One disadvantage of operating a business as a proprietor is that the firm is subject to double taxation because taxes are levied at both the firm level and the owner level.
c. Corporations face fewer regulations than proprietorships.
d. One advantage of forming a corporation is that equity investors are usually exposed to less liability than they would be in a partnership.
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.
As we know that in a partnership, the risk of exposure to liability is very large as compared to the risk of exposure to liability in a corporation because a partnership is owned by a group of business owners whereas the shareholders form a corporation.
Answer: (d) One advantage of forming a corporation is that equity investors are usually exposed to less liability than they would be in a partnership.
