stock_Oct_17 - ORIE 350 October 17, 2006 Stock Stockholders...

Info iconThis preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
    ORIE 350 October 17, 2006 Stock
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
    Stockholder’s Equity A. A corporation is a business organization authorized by the state and considered a separate legal entity from its owners. B. There are several advantages to the corporate form of business. 1. Separate legal entity. 2. Limited liability of owners. 3. Ease of capital generation. 4. Ease of transfer of ownership. 5. Lack of mutual agency. 6. Continuous existence. 7. Centralized authority and responsibility. 8. Professional management.
Background image of page 2
    Disadvantages of the Corporation 1. Double taxation. Say you own 100% of a C-corporation. The corporation’s net income is taxed. If you pay yourself a dividend, the dividends you receive as a private individual are taxed again. Hence, most small corporations will form as an S-corporation (no double tax).
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
    Disadvantages 2. Limited liability of owners. Example: A rich person owns a corporation. The corporation has limited assets, owes $2.5 million to a bank, and the loan is guaranteed by the Small Business Administration. In the case of a bankruptcy, the SBA pays back the bank in full, and can only claim the assets of the corporation. The SBA cannot claim the assets of the rich person. In fact, the company does go bankrupt, costing taxpayers $2.5 million. Who was it?
Background image of page 4
    Guess the Bush Family Member :    It’s the President’s brother Neil (center).
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
  Disadvantages 3. Separation of ownership and control Occasionally, management does not act in the best interest of its owners (stockholders). Example: a corporation owns a fleet of jet planes for use by management. This is why many corporations compensate their upper management with stock, so that upper level managers become (in effect) owners as well. This always works!
Background image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/05/2009 for the course ORIE 350 taught by Professor Callister during the Summer '08 term at Cornell University (Engineering School).

Page1 / 25

stock_Oct_17 - ORIE 350 October 17, 2006 Stock Stockholders...

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online