Question

Which of the following is a disadvantage of incorporation?

• Corporations cease to exist when an owner passes away.

• A corporation cannot sell capital stock to raise money.

• The income of a corporation is double taxed.

• Owners of corporations are liable for the business’ debts.

Answer 1

Correct answer:

Option(3) is correct answer because the after the incorporation the corporation pays the taxes twice one on the income of the corporation and secondly on the dividend of the shareholders.So the income is double taxed.

Incorrect answers:

Option(1) is incorrect answer because the corporation will not cease when owner passes away, so it is advantage of the corporation.

Option(2) is incorrect answer because corporation can sell capital stock to raise money.It is advantage of the corporation.

Option(4) is incorrect answer because owners of the corporations are not liable for the business debt.

So correct answer is option(3)