Question

Which of the following statements is true of corporations?

Multiple Choice
They are exempt from double taxation on corporate income.
They require a license to conduct business in foreign states.
They can be created automatically, based on business conduct.
They are dissolved whenever a member withdraws.
They are totally controlled by the proprietor.

Answer 1

Corporations require a license to conduct business in foreign states. They are legal entities separate from their owners and are not automatically created but require following specific legal requirements. Moreover, they are not exempt from double taxation on corporate income.

Step-by-step explanation:

Among the given choices, the true statement about corporations is that they require a license to conduct business in foreign states. Corporations are legal business entities that are separate from their owners and provide protection from personal liability. They are not created automatically and are subject to formation according to specific legal requirements.

However, it is important to note that corporations are not exempt from double taxation; they are subject to corporate income taxes on their profits and, when profits are distributed to shareholders in the form of dividends, the shareholders may also pay taxes on these distributions. A corporation does not dissolve whenever a member withdraws, since the entity has a perpetual existence independent of its shareholders. Furthermore, corporations are not controlled by a proprietor, but by a board of directors who make decisions on behalf of the shareholders of the company.

Unlike sole proprietorships, the creation of a corporation constitutes a more formal process that includes establishing bylaws, issuing stock, and meeting other state-specific requirements. The rigorous structure of a corporation often provides the necessary legal framework to raise funds and grow the business on a larger scale.

Answer 2

Corporations require a license to operate in foreign states and are subject to double taxation; they must be formally established and do not dissolve upon a member's withdrawal. They are governed by a board and management, not a single proprietor.

Step-by-step explanation:

Among the given choices, the statement "They require a license to conduct business in foreign states" is true of corporations. Corporations are legal entities separate from their owners with distinct rights and responsibilities. They need to obtain appropriate licenses to operate beyond their home jurisdiction, adhering to both domestic and international regulations.

Contrary to one of the choices, corporations are not exempt from double taxation; they are in fact subject to it. Corporate profits are taxed at the corporate level, and then dividends distributed to shareholders are taxed again at the individual level. Also, corporations are not created automatically but require a formal process of incorporation to establish the business entity.

Lastly, corporations do not dissolve when a member withdraws, due to their nature as separate legal entities with an unlimited lifespan. Ownership in a corporation is easily transferable through the sale of stock. It is incorrect to say that corporations are totally controlled by the proprietor, as they are usually governed by a board of directors and management that act in the interest of all shareholders.