Which statement correctly contrasts a corporation with a sole proprietorship?

• A. A corporation provides unlimited liability and continuous existence.
• B. A corporation is taxed only on profits at the entity level, while a sole proprietorship is not taxed.
• C. A sole proprietorship has perpetual existence.
• D. A corporation provides limited liability and continuous existence; a sole proprietorship has unlimited personal liability and limited continuity.

Answer: (D)

This contrast centers on liability protection and continuity of existence. A corporation is a separate legal entity, so owners have limited liability—their personal assets are generally protected from the business’s debts. It also has continuous existence, meaning the business continues to exist independent of changes in ownership, including the death or withdrawal of shareholders. A sole proprietorship, on the other hand, is not a separate entity; the owner assumes unlimited personal liability for all debts and obligations, and the business typically ends when the owner dies or stops operating. So, stating that a corporation provides limited liability and continuous existence, while a sole proprietorship has unlimited personal liability and limited continuity, accurately contrasts the two forms.

The other statements misstate these points: claiming unlimited liability for a corporation ignores the protection it provides, or claiming perpetual existence for a sole proprietorship ignores the owner-dependent nature of that form, and suggesting different taxation at the entity level for a corporation versus the owner’s personal taxes oversimplifies how corporate and sole proprietorship taxes actually work.