Which of the following is a main advantage of organizing a firm as a corporation?

• A. Exemption from double taxation
• B. Direct management by all shareholders
• C. Limited liability for shareholders
• D. Unlimited liability for owners

Answer: (C)

Verified step by step guidance

1. Understand the concept of a corporation: A corporation is a legal entity that is separate from its owners (shareholders). It has its own rights and responsibilities, and its structure provides certain advantages and disadvantages.
2. Review the concept of limited liability: Limited liability means that shareholders are only responsible for the debts and obligations of the corporation up to the amount they have invested. Their personal assets are protected from corporate liabilities.
3. Compare limited liability to unlimited liability: Unlimited liability, which is common in sole proprietorships and partnerships, means that owners are personally responsible for all debts and obligations of the business, potentially risking their personal assets.
4. Analyze the advantages of a corporation: One of the main advantages of organizing a firm as a corporation is the limited liability for shareholders. This protects shareholders from being personally liable for the corporation's debts beyond their investment.
5. Conclude why limited liability is the correct answer: Among the options provided, limited liability for shareholders is a key advantage of a corporation, as it offers financial protection to the owners while allowing the corporation to operate as a separate legal entity.