corporation_ - CHAPTER-6 Corporation organization and...

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Page 1 of 14 CHAPTER-6 Corporation organization and operation Corporation is a legal entity distinct and separate from its owners. As an artificial legal being, a corporation may acquire, own, and dispose of property in its own name. It may also borrow money enter to contract sue ad be sued. Characteristics of corporation A number of characteristics distinguish a corporation from proprietorship and partnership. 1. Separate legal entity - A Corporation acts as an artificial person separate and distinct from their owners who are called stockholders or shareholders. 2. Limited liability -The liability of stockholders limited in their investment in the corporation, and creditors have on legal claim on personal assets of the owner. 3. Continuous life and transferability of ownership - The ownership of a corporation is divided in to shares of stock, which are transferable unit. This makes a corporation to have a continuous life regardless of change in the ownership of their stock. 4. Corporate taxation -corporations are separate taxable entities .They pay a variety of taxes not required for proprietorship and partnership 5. Separation of ownership and management -stockholders own the business, but a board of directors elected by stockholders appoint corporate officers to manage the business. Advantages of the corporate form of organization Several characteristics of corporation may make this form of organization more desirable than either a partnership or a proprietorship. 1. Greater amount of capital can be raised -large number of individual and institutions can more easily and efficiently acquire and dispose of ownership interest in a corporation than in a partnership. 2. Owners liability is limited to the amount invested in the corporation 3. Ownership shares area easily transferable After the initial sale of stock, shares may be transferred in private sale transaction, traded (soled) on without asking for approval from the Co. Management. 4. Continuity of existence -reefers to the unlimited life of a corporation the transfer of shares does not affect the corporation‘s ability to operate routinely over decades. 5. Professional management the excellent record of growth and earnings in most large corporation indicate that the separation of ownership and control has benefited rather than injured stockholders. Disadvantages of corporate form of organization I. Double taxation exists Income of a corporation is taxed twice. II. Government regulation exists -corporation is subject more to government regulations than either proprietorship or partnership. III. Not easy to form IV. Large setting up cost
Page 2 of 14 Formation of a corporation Creation of a corporation begins when its organizers, called the incorporators, obtain a charter form the state. The charter includes the authorization for the corporation to issue a certain number of shares of stock, which are shares of ownership in the corporation. To

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