Future Business Leaders of America (FBLA) Agribusiness Practice Test

What is one advantage of a corporation?

1. Unlimited liability for owners

2. As partners, owners share profits equally

3. Limited liability for debts and expenses

4. No requirement for a formal organizational structure

The correct answer is: Limited liability for debts and expenses

Limited liability for debts and expenses is a significant advantage of a corporation that differentiates it from other business structures like sole proprietorships and partnerships. This means that the personal assets of the owners, or shareholders, are protected from the corporation's debts and liabilities. If a corporation is sued or incurs debt, the owners are generally only responsible for the amount they have invested in the corporation and not more. This limitation encourages investment and entrepreneurship, as potential investors might be more willing to buy shares in a corporation knowing that their personal finances are safeguarded. In comparison, other options reflect characteristics that do not align with the benefits typically associated with corporations. Unlimited liability for owners, for example, is a feature of sole proprietorships and partnerships, placing all financial risk on the individual owner's personal assets. Similarly, sharing profits equally as partners pertains to partnerships and might not accurately represent corporate profit-sharing, where profits are distributed based on share ownership rather than equality among owners. Lastly, while corporations do have structures, they are usually governed by formal organizational guidelines, making the lack of a requirement for a formal structure not applicable to them.