Question

which of the following statements is correct? if a corporation elects to be taxed as an s corporation, then both it and its stockholders can avoid all federal taxes. this provision was put into the federal tax code in order to encourage the formation of small businesses. the more capital a firm is likely to require, the smaller the probability that it will be organized as a corporation. it is generally easier to transfer ones ownership interest in a partnership than in a corporation. one danger of starting a proprietorship is that you may be exposed to personal liability if the business goes bankrupt. this problem would be avoided if you formed a corporation to operate the business. corporate shareholders are exposed to unlimited liability, but this factor is offset by the tax advantages of incorporation. question 8 (2.5 points)

Explanation:

1. For S - corporations, they avoid double - taxation but not all federal taxes. Shareholders still pay personal income taxes on their share of the S - corporation's income.
2. Firms requiring more capital are more likely to be organized as corporations due to the ability to raise large amounts of capital through stock issuance.
3. It is generally easier to transfer ownership in a corporation (by selling stocks) than in a partnership.
4. In a proprietorship, the owner has personal liability if the business goes bankrupt. In a corporation, the owners (shareholders) have limited liability. Corporate shareholders have limited liability, not unlimited.

The correct statement is that one danger of starting a proprietorship is that you may be exposed to personal liability if the business goes bankrupt. This problem would be avoided if you formed a corporation to operate the business.

Answer:

One danger of starting a proprietorship is that you may be exposed to personal liability if the business goes bankrupt. This problem would be avoided if you formed a corporation to operate the business.