Vocabulary - Chapters 12 and 13 Flashcards
4 most common legal forms for operating a business
Proprietorship, Corporation, Partnership, Limited Liability Company
Characteristics of Proprietorships
Simple to form, No limitation on legal liability, Not taxable, Limited life, Limited ability to raise capital
Characteristics of Partnerships
Moderate to form, No limitation on legal liability, not taxable, limited life, limited ability to raise capital, co-ownership, mutual agency, participation in income and loss
Limited Liability Companies
Moderate to form, Limited legal liability, not taxable, unlimited life, moderate ability to raise capital
Limited Liability Company
A form of legal entity that provides limited liability to its owners, but is treated as a partnership for tax purposes
Liquidation
the winding up process when a partnership goes out of business
Steps in Liquidating a Partnership
Sale of assets, division of gain or loss on realization, payment of liabilities, distribution to partners
Statement of partnership equity
Reports changes in partnership capital accounts
Stock
Shares of ownership in a corporation
Corporation
Legal entity, distinct and separate from the individuals who create and operate it.
Stockholders
Own the stock of a corporation, therefore own the corporation
Dividends
Distributions of a corporation’s earnings to stockholders.
Rights that accompany ownership of a share of stock
the right to vote in matters concerning the corporation, the right to share in distributions of earnings, the right to share in assets on liquidation
Cumulative preferred stock
Has the right to receive regular dividends that were not declared in prior years.
Noncumulative preferred stock
Does not have the right to receive dividends that were not paid in previous years
Treasury Stock
Stock that a corporation has issued and then reaquired
Reasons to acquire treasury stock
To provide shares for resale to employees, to reissue as bonuses to employees, to support the market price of stock
Appears on the stockholders’ equity section of the balance sheet
Paid-in capital, retained earnings, treasury stock
Stock split
A process by which a corporation reduces the par or stated value of its common stock and issues a proportionate number of additional shares
Conditions for cash dividends
Sufficient retained earnings, sufficient cash, formal action by the board of directors
