Federal Income Tax 2 – Discussion W1

The business entities that operate as corporations, combine the characteristics of a
corporation with those of a sole proprietorship. The legal issue is vital as it affects the structure of
the business entity. When one member of the business enterprise is bankrupt, then the
corporation will have to be dissolved. The act is a challenge as other business enterprises that do
not operate as corporations can still be operating in perpetuity. Hence, businesses that operate as
corporations cannot have the ultimate goal of a publicly traded company.
With limited liability, the business faces high risks of going bankrupt. The business will
face a hard time recovering as there is no risk-sharing. Limited liability does not allow
stakeholders to be a part of the company’s liabilities. Therefore, the company will deal with the
losses and risks on an individual basis. The stakeholders will only be legally responsible for the
liabilities of the company to the level of the nominal value of the shares they have in that
organization.
Also, if the business operating as a corporation is sued, the plaintiff will only be suing the
company but not the owners or the stakeholders in the company. The act puts the business in a
tough position to recover from losses. In addition, there is a limitation on the number of funds
an individual risks when investing in businesses that operate as corporations. There is a limitation
to the exposure to the financial risks by the investors of the company.