The Concept of Limited Liability - Essay Example

Under other business structures such as sole ownership, the owners have to pay for the entire debt that the business leaves behind. The reason that corporations are able to offer limited liability is that a corporation is considered a separate legal entity (Weygand & Kieso & Kimmel, 2002).

Choosing a corporation over other types of business structures has other advantages. The corporation is the best business structure for entrepreneurs that are looking to raise capital. The way that the corporation allows its owners to raise large sums of capital in short amounts of time is through the sale of common stocks. In order for a corporation to sell common stocks, it must become a public corporation registered in the Securities and Exchange Commission (SEC).

Once a corporation becomes public its common stocks become a very liquid asset that is traded in open markets such as the New York Stock Exchange (NYSE) or in the over-the-counter market known as NASDAQ. Choosing the corporate form can also help managers obtain better benefits from governmental institutions in the form of incentives. One of the main disadvantages of the corporate form is double taxation.