Which of the following is a valid distinction between a corporation and a proprietorship?

• A. A proprietorship can issue shares of stock, but a corporation cannot.
• B. Only proprietorships are required to pay corporate income taxes.
• C. Corporations have unlimited liability, whereas proprietorships have limited liability.
• D. A corporation is a separate legal entity from its owners, while a proprietorship is not.

Answer: (D)

Verified step by step guidance

1. Understand the key characteristics of a corporation and a proprietorship. A corporation is a separate legal entity, meaning it exists independently of its owners, while a proprietorship is not legally separate from its owner.
2. Review the concept of liability. Corporations typically have limited liability, meaning the owners (shareholders) are not personally responsible for the corporation's debts. In contrast, proprietorships have unlimited liability, where the owner is personally responsible for all debts.
3. Examine the taxation differences. Corporations are subject to corporate income taxes, while proprietorships are taxed as part of the owner's personal income.
4. Consider the ability to issue shares of stock. Corporations can issue shares to raise capital, whereas proprietorships cannot issue stock.
5. Conclude that the correct distinction is: A corporation is a separate legal entity from its owners, while a proprietorship is not. This is the fundamental difference between the two business structures.