Case Study Eight
The simple corporation is a legal entity, “an artificial being, invisible, intangible,
and existing only in contemplation of the law” (Longenecker, Moore, Petty, & Palich,
The corporation is liable for all debts and consequences related to the
business, not its owners.
This differs from sole proprietorship and other simple
partnerships as the owners of the business have a specific invested interest in the
company and are held personally liable for any and all business dealings, debts, and
Flexibility and complete control are some advantages for owners, but full
personal responsibility and vulnerability of personal assets are some disadvantages that
owners will face.
Subchapter S corporations, which gets its name from the Subchapter S of the
Internal Revenue Code, allows a business to maintain limited liability status like a simple
corporation but gives the corporation the tax status of a partnership (Longenecker,
Moore, Petty, & Palich, 2008).
However there are some conditions that must be met in
order to achieve subchapter S status.
The corporation must not have more than 75
stockholders, the stockholders must be individuals, only one class of stock can be
outstanding, the corporation must operate on a calendar year fiscally, and there can be no
nonresident stockholders (Longenecker, Moore, Petty, & Palich, 2008).
The tax status