ch14 - CHAPTER 14 ANSWERS TO QUESTIONS 01. (a) (b) (c) 02....

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CHAPTER 14 ANSWERS TO QUESTIONS 0 1. (a) Separate legal existence. A corporation is separate and distinct from its owners and it acts in its own name rather than in the name of its stockholders. In contrast to a partnership, the acts of the owners (stockholders) do not bind the corporation unless the owners are duly appointed agents of the corporation. (b) Limited liability of stockholders. Because of its separate legal existence, creditors of a corpo- ration ordinarily have recourse only to corporate assets to satisfy their claims. Thus, the liability of stockholders is normally limited to their investment in the corporation. (c) Transferable ownership rights. Ownership of a corporation is shown in shares of capital stock. The shares are transferable units. Stockholders may dispose of part or all of their interest by simply selling their stock. The transfer of ownership to another party is entirely at the discretion of the stockholder. 0 2. a. Corporation management is an advantage to a corporation because it can hire professional managers to run the company. Corporation management is a disadvantage to a corporation because it prevents owners from having an active role in directly managing the company. b. Two other disadvantages of a corporation are government regulations and additional taxes. A corporation is subject to numerous state and federal regulations. For example, state laws pre- scribe the requirements for issuing stock, and federal securities laws govern the sale of stock to the general public. Corporations must pay both federal and state income taxes. These taxes are substantial. In addition, stockholders must pay income taxes on cash dividends received. 0 3. a. (1) A charter is a document that creates a corporation. A charter is also referred to as the ar- ticles of incorporation. (2) The by-laws are the internal rules and procedures for conducting the affairs of a corpo- ration. They also indicate the powers and relationships of the stockholders, directors, and officers of the corporation. (3) Organization costs are costs incurred in the formation of a corporation. In accounting, organization costs are classified as an intangible asset, and they are generally amortized over a period of at least five years. b. Disagree. A corporation must be incorporated in only one state. It is to the company's advan-tage to incorporate in a state whose laws are favorable to the corporate form of business orga-nization. A corporation may incorporate in a state in which it does not have a headquarters office or major operating facilities. 0 4. In the absence of restrictive provisions, the basic ownership rights of common stockholders are the rights to: (1) vote for the election of the board of directors and in corporate actions that require stockholders' approval. (2)
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ch14 - CHAPTER 14 ANSWERS TO QUESTIONS 01. (a) (b) (c) 02....

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