Which of the following is a disadvantage of the corporate form of organization? - Corporations can hire better managers. - Both the corporation and its stockholders are taxed on profits retained and distributed. - The organization survives its owners. - Ownership of stock is easy to transfer. - More capital can be raised by the corporate form.

Answer

The correct answer is: 'Both the corporation and its stockholders are taxed on profits retained and distributed.' This concept is commonly known as 'double taxation.' In a corporate structure, the corporation is recognized as a legal entity separate from its owners. Consequently, the corporation must pay corporate income tax on its earnings. When those same earnings are distributed to shareholders in the form of dividends, the shareholders must also pay personal income tax on that income. This is a primary disadvantage compared to sole proprietorships or partnerships, where income is typically only taxed once at the individual level. The other options listed (hiring better managers, perpetual existence, ease of ownership transfer, and ability to raise capital) are all considered advantages of the corporate form of business.