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Which of The Following Is Not a Characteristic of a Corporation?
There are many elements that are not characteristic of a corporation.
Here are certain characteristics that are not representative of corporations:
- The stockholders of a corporation have unlimited liability
- A company shareholder is personally liable for the debt of the corporation
- The corporation’s resources are limited to what the stockholders can contribute
- The corporation can deduct cash dividends as expenses
- Double taxation is an advantage of corporations
- Ownership rights are not easily transferred in a corporation
Shareholder Limited liability
In fact, company shareholders have limited liability protection.
This is what makes a corporate vehicle an attractive business form to start a business or undertake risky business ventures.
Also, a corporation has a much greater capability in raising capital as it can sell its shares to investors and third parties.
For this reason, a corporation can access resources and capital exceeding what the stockholders initially contribute.
Dividends are not an expense for the company.
Dividends actually represent the distribution of profits to shareholders.
As a result, the company cannot deduct cash dividend payouts as a corporate expense.
Double taxation is actually a disadvantage of operating a business under a corporation.
The reason why this is viewed as a disadvantage is that companies must first file their corporate income taxes and pay taxes on their revenues.
Then, from their net profits, they can distribute dividends to the shareholders.
However, when the shareholders receive the company dividends, they must pay taxes on their personal income taxes.
As a result, the same dollar gets taxed in the hands of the corporation and the shareholder (thus “double” taxation).
In a corporation, it’s false to say that ownership rights are hard to transfer.
In fact, corporations offer a flexible way of transferring shares from one shareholder to another.
This is particularly the reason why the corporate vehicle is the preferred entity for venture capitalists, banks, and investors as they can provide money in exchange for stock ownership.
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Which of The Following Is NOT a Characteristic of a Corporation?
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