Chapter+11+Notes+Blank+2011+class+sakai - CHAPTER 11:...

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CHAPTER 11: Reporting and Analyzing Stockholders’ Equity Major Characteristics of a Corporation A corporation is: A legal entity. Created by law. Has most of the rights and privileges of a person. May be classified by purpose and by ownership . A corporation may be organized for the purpose of making a profit (such as Nike or General Motors) or it may be a nonprofit charitable, medical, or educational corporation (such as the Salvation Army or the American Cancer Society). Classification by ownership differentiates publicly held or privately held corporations. A publicly held corporation may have thousands of stockholders and its stock is regularly traded on a national securities market. A privately held corporation , often referred to as a closely held corporation, does not offer its stock for sale to the general public and usually has only a few stockholders. Characteristics of a Corporation Several characteristics distinguish corporations from proprietorships and partnerships. Separate legal existence: An entity separate and distinct from owners. Acts under its own name rather than the name of stockholders. May buy, own, and sell property; borrow money; and enter into legally binding contracts; may sue or be sued; and pays its own taxes. The acts of owners (stockholders) do not bind the corporation unless the owners are agents of the corporation. Limited liability of stockholders: Creditors ordinarily have recourse only to corporate assets to satisfy their claims. Liability of stockholders is normally limited to their investment in the corporation. Creditors have no legal claim on personal assets of the stockholders unless fraud has occurred. In the event of bankruptcy of the corporation, stockholders’ losses are generally limited to the amount of capital they have invested in the corporation.
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Transferable ownership rights: Ownership of a corporation is held in shares of capital stock, which are transferable units. The transfer of stock is at the discretion of the stockholder; it does not require the approval of either the corporation or other stockholders. Transfer of ownership rights among stockholders has no effect on operating activities of the corporation; nor does if affect the corporation’s assets, liabilities and total stockholders’ equity. The corporation does not participate in transfer of ownership rights after original sale of capital stock. Ability to acquire capital: It is relatively easy for a corporation to obtain capital through the issuance of stock. Buying stock in a corporation is often attractive to an investor because a stockholder has limited liability and shares of stock are readily transferable. Numerous individuals can become stockholders by investing small amounts of money.
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This note was uploaded on 01/18/2012 for the course ACCT 207 taught by Professor Hudchinson during the Fall '08 term at University of Delaware.

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Chapter+11+Notes+Blank+2011+class+sakai - CHAPTER 11:...

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