Describe the business organization that is characterized by limited liability.
Answer to Problem 1SSQ
c. Corporation is the form of business organization that is characterized by limited liability.
Explanation of Solution
a. Sole proprietorship: It is one form of simple business that is owned and maintained by a single person. Set up of very simple and taking care of business is very easy. Government provides tax advantages for these firms. The liability of the owner is unlimited. Thus, option (a) is incorrect.
b. Partnership: Partnership firms are started by two or more individuals joining together. This form of partnership is very easy to establish and there is a shared control. The duties and formalities of the concern are formalized by making a partnership agreement. In this type of company, individuals with similar interest join together and startup a business. As previously stated for sole proprietorship, partnership firms too enjoy tax advantages. Thus, option (b) is incorrect.
c. Corporation: A business concern where there is a separate legal entity and are owned by shareholders are classified as corporation. Transfer of ownership and raising funds are easy in this form of organization. No personal legal liability exists among the shareholders. The liability of the shareholders is limited. The corporation also faces double taxation. Hence, option (c) is correct.
d. Both sole proprietorship and partnership: The liabilities in both forms of businesses are not limited. This is because, both of it includes the personal assets. Thus, option (d) is incorrect.
Therefore, the correct option is c.
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