Chapter 13, Problem 1QC

To determine

Double Taxation: The principle of twice the payment of income tax for the same source of income is known as double taxation.

Corporation: It is a form or business wherein the company is a separate legal entity and is not affected by the death of its owners. In a corporation, the finances are raised through investors by issuing them company shares i.e. ownership of the company as per their share in the equity.

:

To identify the characteristic of a corporation which is a disadvantage.

Answer to Problem 1QC

Solution:

The Double taxation characteristic of a corporation is a disadvantage for the corporation.

Explanation of Solution

The first option “Mutual agency” is an advantage of a corporation because there is no mutual agency in corporation and the third option “limited liability” is also an advantage of a corporation because the shareholder of the corporation cannot be held personally liable for the corporation’s debts and liabilities.

According to third characteristic, a corporationpay taxes twice. One, when the corporation makes profit from its business activity, it pays corporate tax on its profit. Second, when the corporation declares dividend for shareholders to distribute the profit. It is consider as a disadvantage of a corporation.

Conclusion

:

One of the major disadvantages of a corporation is the double taxation characteristics of a corporation. It basically means the corporation has pay taxes two times on the same profit amount during a particular business period.