Which of the following best explains why a corporation is considered the most important form of business organization?

• A. It allows owners to avoid double taxation on profits.
• B. It offers limited liability to its owners, making it easier to raise large amounts of capital.
• C. It requires no formal registration or legal documentation.
• D. It is the simplest form of business to establish and operate.

Answer: (B)

Verified step by step guidance

1. Understand the key characteristics of a corporation: A corporation is a separate legal entity from its owners, which provides limited liability protection to its shareholders. This means that the personal assets of the owners are not at risk for the corporation's debts or liabilities.
2. Compare the advantages of a corporation to other forms of business organization: Unlike sole proprietorships or partnerships, corporations can raise large amounts of capital by issuing shares to investors. This makes them particularly suitable for large-scale operations.
3. Analyze the concept of double taxation: Corporations are subject to corporate income tax on their profits, and shareholders may also pay taxes on dividends received. This is a disadvantage compared to other business forms like sole proprietorships, which avoid double taxation.
4. Evaluate the legal requirements: Corporations require formal registration and legal documentation, such as articles of incorporation, which distinguishes them from simpler business forms like sole proprietorships or partnerships.
5. Conclude why corporations are considered the most important form of business organization: The ability to offer limited liability to owners and raise substantial capital makes corporations a preferred choice for large and complex business operations.