Accounting: Tools for Business Decision Making, 5th Edition

Published by Wiley
ISBN 10: 1118128168
ISBN 13: 978-1-11812-816-9

Chapter 1 - Introduction to Financial Statements - Self-Test Questions: 2

Answer

Reduced legal liability for investors

Work Step by Step

Reduced legal liability for investors is an advantage to corporations relative to partnerships. Sole proprietors and partners in a partnership are personally liable for all debts of the business while corporate stockholders are not. On the other hand, corporations have higher taxes than proprietors and partners in partnerships. It is also easier, not harder, for corporations to transfer ownership because they can sell parts of the ownership in form of stock. Corporations are not the most common form of organization in the USA as the number of proprietorships and partnerships is more than five times the number of corporations.
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