Future Business Leader Achievments (FBLA) Economics Practice Exam

Which of the following is a major advantage of the corporate form of business organization?

1. Lower taxes

2. Fewer regulations

3. The limited liability of the owner

4. Being inexpensive to start

The correct answer is: The limited liability of the owner

The major advantage of the corporate form of business organization is the limited liability of the owner. This means that the personal assets of shareholders are protected from the corporation’s debts and liabilities. In the event that the corporation faces financial issues or lawsuits, only the assets of the corporation are at stake, not the personal belongings of its owners. This feature encourages investment and entrepreneurial activity since individuals can participate in a corporation without risking their personal wealth. In comparison, lower taxes, fewer regulations, and low startup costs are typically not characteristics associated with corporate structures. Corporations often face higher tax rates, comply with more rigorous regulations, and usually require more initial capital and complexity to establish than other business forms like sole proprietorships or partnerships. The limited liability feature is thus a defining advantage that contributes significantly to the attractiveness of the corporate structure to potential investors and business owners.