Chapter 20, Problem 1TF

To determine

Identify whether the given statement is true or false.

Answer to Problem 1TF

The given statement “Corporations do more dollar volume of business than sole proprietorships and partnerships combined” is true.

Explanation of Solution

Corporation:

Corporation is the form of organization that has legal existence that is owned and controlled as a single organization which is Separate from its owners.

Corporate form of business offers certain advantages while comparing to sole proprietorship and partnerships and they are listed as follows:

Limited liability of owners:

The liability of the corporation is limited to the extent of the face value of shares. Thus, the members of the corporation are not asked to contribute more than the face value of shares which are held by them in order to pay the liabilities of the Corporation.

No Mutual agency:

Each owner has the right to act as agents and can engage in contracts for the business in a mutual agency. But, in a corporation individual owners do not have the power to negotiate contracts unless the other owners grant for it.

Transferable ownership units:

In a corporation, capital stock is divided into shares which represent the ownership rights of its member. The ownership of shares can be transferred from one person to another person without any conditions and without troubling the normal activities of corporation.

Indefinite life:

The existence of the Corporation remains unaffected even if there is any insolvency, death, retirement among the members. Thus, the corporation has indefinite life and it continues to operate its business irrespective of any circumstances.

Ease of raising capital:

Corporation acquires capital by selling its additional shares of stock because transferable ownership units and limited liability act as an attractive characteristic for people to make investment in corporation.

Corporation plays a vital role in the economy. The goods and services sold by Corporations are more in total than sole proprietorship and partnership combined together. Therefore, according to the above explanation the given statement “Corporations do more dollar volume of business than sole proprietorships and partnerships combined” is true.