Question

A disadvantage of the corporate form of organization is that corporate stockholders are more exposed to personal liabilities in the event of bankruptcy than are investors in a typical partnership.
True / False.

Answer 1

Answer:

The correct answer is False.

Explanation:

The main advantages are the following:

Limits of Liability

The main advantage of a corporate form of business is that a corporation is an independent entity, which means that you are not personally responsible for the assets and debts of the company. The incorporation protects your personal assets from lawsuits, debt collection and other business matters that may arise.

Tax treatment

The independent entity also separates tax obligations, which is another advantage. This means that the corporation's taxes are separate from your personal tax obligations. As a business owner, you are responsible for paying taxes only on the money that the company pays to you in the form of a salary, commission or dividends, this is as for your personal tax return. The company is responsible for paying corporate taxes (at the corporate tax rate) on any profit the company makes.

Eternal

Another advantage of a corporate corporate form is that it does not die when its owners do. Because a corporation is its own entity, it lives even after the shareholders (owners) decide to move forward or dissolve the company or if the company merges with another company. It is easier to sell or merge a company, since it is a matter of changing shareholders rather than having to establish a completely new business.

Costs

One of the main disadvantages of a corporation is the costs for operating a corporate form of the company. It costs money to incorporate in the state in which the company operates. You can choose to hire a lawyer or accountant to help you complete the incorporation paperwork, but it is not a requirement. If you incorporate directly with the Secretary of State, as of 2010, the rate ranges from US $ 99 to US $ 150. Beyond the initial incorporation fees, the corporate form of the company also has current rates associated with it. A fee for an annual report can cost up to US $ 150 per year for each year that the corporation exists after the initial submission of incorporation.

Double taxation

For C corporations, the company ends up paying taxes twice. First, when corporation C makes a profit, it pays a corporate tax in the amount of benefits. The second time that corporation C pays taxes is when it distributes dividends to shareholders. Many companies that join choose to do so as an S corporation instead in order to avoid double taxation. The only difference between a C corporation and an S corporation is a tax designation filed with the IRS using Form 2553. According to the IRS, an S corporation can choose to spend the rent, losses, deductions and credits for the corporation through the Corporation shareholders for federal tax purposes. This avoids the possibility of double taxation to which a C corporation is subject.

Documentation

Corporations need to keep more records than other business entities. Companies must submit annual reports and tax returns and maintain business bank accounts and records that are independent of personal accounts. Records of shareholder meetings, board of minutes of the director's sessions, licenses and other corporate documents are also required.