Which of the following is NOT a disadvantage of a corporation?

• A. Double taxation
• B. Cost of setup and report filing
• C. Each shareholder is financially liable only for the amount of money he/she invest
• D. Requires extensive record keeping and compliance

Answer: (C)

The main concept here is understanding how liability works for different business forms and how that relates to what counts as a disadvantage. In a corporation, shareholders have limited liability: their personal assets are generally protected from the company’s debts and liabilities, and they’re only at risk for the amount they invested. That protection is a clear advantage of the corporate form, not a drawback. So describing limited liability as a liability would be incorrect; it’s actually the feature that is not a disadvantage.

The other items are genuine drawbacks of forming a corporation. Double taxation refers to profits being taxed at the corporate level and then again when distributed as dividends to shareholders. The cost of setup and report filing covers higher formation costs and ongoing compliance expenses. Requires extensive record keeping and compliance reflects the substantial regulatory requirements, including filings, minutes, and audits.