Question

What are the disadvantages of the corporate form?

1) Agency costs
2) Double taxation
3) Cost of managing the corporation
4) All of the options

Answer 1

The corporate form of business comes with several disadvantages, including agency costs, double taxation, and the high costs associated with managing the corporation and compliance with government regulations.

Step-by-step explanation:

Disadvantages of the Corporate Form

One of the primary disadvantages of the corporate form of business is agency costs. This refers to the costs associated with resolving conflicts of interest between stakeholders and management, which can arise when managers do not act in the best interest of the shareholders. Another significant drawback is double taxation. Corporations are taxed on their profits, and when these profits are distributed as dividends, shareholders are taxed again on this income. Additionally, there are substantial costs of managing the corporation, including compliance with various regulations and the expense of setting up the corporate structure. Corporations also face rules and governmental regulations that can be stringent and complex, leading to a further administrative burden.