Chapter 11 Flashcards
A corporation has most of the ____________________
rights and privileges of a person
Corporation
A company organized as a seperate legal entity, with most of the rights and privileges of a person
Two common classifications of corporations include:
By purpose
By ownership
Publicly held corporation
A corporation that may have thousands of stockholders and whose stock is traded on a national securities market
Privately held corporation
A corporation that has only a few stockholders and whose stock is not available for sale to the general public
Seperate Legal Existence
Corporate owners (stockholders) do not bind the corporation unless such owners are agents of the corporation
Controller
Chief accounting officer
Responsibilities:
- Maintain the accounting records
- Maintain an adequate system of internal control
- Prepare financial statements, tax returns, and internal reports
Treasurer
Has custody of the corporation’s funds and is responsible for maintaining the company’s cash position
Managers who are not owners
Often compensated based on the performance of the company
May be tempted to exaggerate company performance by inflating income figures
Taxed twice (double taxation)
Corporate income is taxed once at the corporate level and again at the individual level
Advantages of a Corporation compared to a sole proprietorship and partnership
Seperate legal existence
Limited liability of stockholders
Transferable ownership rights
Ability to acquire capital
Continous life
Corporation management - professional managers
Disadvantages of a corporation compared to a sole proprietorship and partnership
Corporation management - seperation of ownership and management
Government regulations
Additional taxes
S corporation
Legal treatment as a corporation but tax treatment as a partnership
Charter
A document that describes a corporatio’s name and purpose, types of stock and number of shares authorized, names of individuals involved in the formation, and number of shares each individual has agreed to purchase
By-laws
Establish the internal rules and procedures for conducting the affairs of the corporation
Corporatioins engaged in interstate commerce
Must obtain a liscence
Common stock
When a corporation has only one class of stock, it is identified as common stock
Stock certificate
Proof of stock ownership is evidenced by a printed or engraved from
Preemptive right
Stockholders right to keep the same percentage ownership when new shares of stock are issued
Residual claim
Stockholders right to share in assets upon liquidation in proportion to their holdings
Authorized stock
The amount of stock that a corporation is authorized to sell as indicated in its charter
Authorization of stock does not ______________________
result in a formal accounting entry
U.S and U.K corporations
financed through shareholders and bondholders
Germany, France, and Japan corporations
Acquire financing mostly from large banks or other financial institutions
Shareholders less important
Issue stock directly
issued directly to investors
Issue stock indirectly
issue stock to an investment banking firm that specializes in bringing securities to the attention of prospective investors
Par value stock
Capital stock that has been assigned a value per share in the corporate charter
Legal capital
The amount of capital that must be retained in the business for the protection of corporate creditors
No-par value stock
Capital stock that has not been assigned a value in the corporate charter
Stated value
The amount per share assigned by the board of directors to no-par stock
Paid-in capital
The amount stockholders paid to the corporation in exchange for shares of ownership
The stockholders’ equity section of a corporation’s balance sheet includes:
- Paid-in (contributed) capital
- Retained earings (earned capital)