Question

Which of the following is normally considered a disadvantage of the corporate form of business?

Select one:
a. Unlimited liability of owners.
b. Difficult transfer of ownership.
c. Limited life.
d. Double taxation of earnings

Answer 1

The disadvantage of the corporate form of business is double taxation of earnings.

Step-by-step explanation:

The disadvantage of the corporate form of business is double taxation of earnings.

In a corporation, the business itself is taxed, and the dividends paid to shareholders are also taxed. This means that the corporation's profits are subject to taxation at the corporate level, and then again when the earnings are distributed to shareholders as dividends.

For example, let's say a corporation earns $100,000 in profits. The corporation would first pay corporate income tax on this amount. Then, if the corporation decides to distribute $50,000 as dividends to its shareholders, the shareholders would also pay personal income tax on this amount.

This double taxation of earnings can reduce the overall amount of money available for shareholders and make the corporate form of business less attractive compared to other forms such as partnerships or sole proprietorships.