Why were corporations originally formed in economic systems?

• A. To ensure government ownership of all businesses
• B. To prevent the formation of monopolies
• C. To eliminate competition in the marketplace
• D. To allow individuals to pool resources and limit personal liability

Answer: (D)

Verified step by step guidance

1. Understand the historical context: Corporations were originally formed as a legal structure to enable multiple individuals to come together and invest in a business venture collectively.
2. Recognize the key economic problem: Large-scale business projects often require substantial capital that is difficult for a single individual to provide alone.
3. Identify the benefit of pooling resources: By forming a corporation, individuals can combine their financial resources, making it easier to fund large enterprises.
4. Understand the concept of limited liability: A corporation limits the personal financial risk of its investors, meaning they are only liable up to the amount they invested, protecting their personal assets.
5. Conclude that the primary purpose of forming corporations was to facilitate investment and risk-sharing among individuals, rather than to ensure government ownership, prevent monopolies, or eliminate competition.