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chapter12outline

chapter12outline - CHAPTER REVIEW The Corporate Form of...

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CHAPTER REVIEW The Corporate Form of Organization 1. (S.O. 1) A corporation is an entity created by law that is separate and distinct from its owners and its continued existence is dependent upon the corporate statutes of the state in which it is incorporated. 2. The characteristics that distinguish a corporation from proprietorships and partnerships are: a. The corporation has separate legal existence from its owners. b. The stockholders have limited liability. c.Ownership is shown in shares of capital stock, which are transferable units. d. It is relatively easy for a corporation to obtain capital through the issuance of stock. e. The corporation can have a continuous life. f. The management in the corporation's organizational structure is at the discretion of the board of directors who are elected by the stockholders. g. The corporation is subject to numerous government regulations. h. The corporation must pay an income tax on its earnings, and the stockholders are required to pay taxes on the dividends they receive: the result is double taxation. Forming a Corporation 3. The formation of a corporation involves (a) filing an application with the Secretary of State, (b) paying an incorporation fee, (c) receiving a charter (articles of incorporation), and (d) developing by-laws. Ownership Rights of Stockholders 4. When chartered, the corporation may begin selling ownership rights in the form of shares of stock. Each share of common stock gives the stockholder the following ownership rights: Stock Issue Considerations 5. Authorized stock is the amount of stock a corporation is allowed to sell as indicated by its charter. a. The authorization of capital stock does not result in a formal accounting entry.
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b. The difference between the shares of stock authorized and the shares issued is the number of unissued shares that can be issued without amending the charter. 6. A corporation has the choice of issuing common stock directly to investors or indirectly through an investment banking firm (brokerage house). Direct issue is typical in closely held companies, whereas indirect issue is customary for a publicly held corporation.
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