Question

Which of the following statements is correct?

Group of answer choices

One disadvantage of forming a corporation is that equity investors are usually exposed to less liability than they would be in a partnership.

Corporations face more regulations than sole proprietorships.

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.

It is generally less expensive to form a corporation than a proprietorship because, with a proprietorship, extensive legal documents are required.

If a partnership goes bankrupt, each partner is exposed to liabilities only up to the amount of his or her investment in the business.

Answer 1

The statements that are correct are :

Corporations are subject to more regulations than sole proprietorship. As they operate on a public platform they need to comply with a number of regulations failing which the business can face litigation and lose the status of a corporation.

If a partnership firm goes bankrupt then each partner is exposed to liabilities only upto the amount of his or her investment.

It is known as limited liability partnership.

The Statements which are you incorrect are :

Equity investors are only concerned with the amount of the investment they have made with the corporation and they are not subject to or are responsible for any liabilities.

Sole proprietorship has an advantage of pass through taxation, the owner and the business entity are not considered separate identities. So, the problem of double taxation exists in a corporation and not in sole proprietorship.

It is generally more expensive to form a corporation due to the extensive paper work and compliance required.