Which of the following is one way that a corporation is different from a sole proprietorship?

• A. A corporation is always managed by a single individual, while a sole proprietorship is managed by a board of directors.
• B. A corporation's profits are only taxed once, while a sole proprietorship's profits are taxed twice.
• C. A corporation cannot issue shares of stock, while a sole proprietorship can.
• D. A corporation has limited liability for its owners, while a sole proprietorship does not.

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the key differences between a corporation and a sole proprietorship. A corporation is a separate legal entity from its owners, while a sole proprietorship is not.
2. Step 2: Recognize the concept of limited liability. In a corporation, the owners (shareholders) are not personally liable for the company's debts or obligations beyond their investment in the company. In contrast, a sole proprietorship does not offer this protection, and the owner is personally liable for all debts and obligations.
3. Step 3: Eliminate the incorrect options by analyzing their validity. For example, a corporation is not always managed by a single individual, and profits of a corporation are taxed twice (corporate tax and dividend tax), unlike a sole proprietorship where profits are taxed once.
4. Step 4: Note that corporations can issue shares of stock to raise capital, while sole proprietorships cannot. This further distinguishes the two business structures.
5. Step 5: Conclude that the correct answer is based on the concept of limited liability, which is a defining characteristic of corporations and not applicable to sole proprietorships.