Homework Help

Why are most large businesses organized as corporations?

user profile pic

linnie4352 | Student, Undergraduate | (Level 1) Salutatorian

Posted November 9, 2010 at 7:28 AM via web

dislike 1 like

Why are most large businesses organized as corporations?

1 Answer | Add Yours

Top Answer

user profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted November 9, 2010 at 7:52 AM (Answer #1)

dislike 2 like

The major reason for this is liability.  It is much more sensible for a business to organize as a corporation than to remain as a sole proprietorship or a partnership.

When a business is organized as a corporation, its owners are protected from the debts incurred by the corporation.  If the corporation goes bankrupt, only the money that the owners have invested in the corporation is lost.

By contrast, if a business is a proprietorship or partnership and goes bankrupt, the owners are liable for all the debts.  Their personal fortunes (like whatever equity they have in their home or in their retirement accounts) is liable to be taken to pay of their creditors.  This is an unacceptable amount of risk for most people.

Join to answer this question

Join a community of thousands of dedicated teachers and students.

Join eNotes