Question

Make it in a paragraph form and elaborate it well.

Answer 1

One of the most essential reasons why corporations are developed is for liability reasons. Corporations provide stockholders with limited liability. What that means is that if the corporation is sued, the stockholder would not be held personally liable for any damages. Another reason why there are various business forms is because of taxes. One person can have a sole proprietorship or a corporation. The only difference is how it is taxed. All the income from a sole proprietorship is taxed as income to the individual at personal tax rates. However, if that person had a corporation the income would be taxed at corporate rates. Partnership income is also taxed at the individual level. This will be explained in more detail next week.

A corporation is a legal entity that is separate and distinct from its owners.1 Under law, corporations possess many of the same rights and responsibilities as individuals. They can enter contracts, loan and borrow money, sue and be sued, hire employees, own assets, and pay taxes.