What is a disadvantage of corporations?

• A. No taxes on profits.
• B. No formation costs.
• C. The ability to raise funds through stock.
• D. Higher formation costs, extensive record keeping, and corporate taxes.

Answer: (D)

The main idea here is recognizing the practical downsides of operating as a corporation. Forming a corporation involves higher setup costs and more complex compliance requirements—things like filing Articles of Incorporation, paying formation fees, and meeting ongoing formalities such as maintaining minutes, annual reports, and strict governance processes. In addition, corporations face corporate taxes on profits, and if profits are distributed as dividends, those earnings can be taxed again at the shareholder level (double taxation). These factors collectively make this structure more burdensome financially and administratively compared to other business forms.

The other statements describe scenarios that are generally considered advantages or are not true: there are formation costs and taxes for corporations, and the ability to raise funds through stock is a positive aspect, not a disadvantage.