Poration ordinarily have recourse only to corporate

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poration ordinarily have recourse only to corporate assets to satisfy their claims. Thus, theliability of stockholders is normally limited to their investment in the corporation.(c)Transferable ownership rights. Ownership of a corporation is shown in shares of capitalstock. The shares are transferable units. Stockholders may dispose of part or all of theirinterest by simply selling their stock. The transfer of ownership to another party is entirely atthe discretion of the stockholder.2.(a)Corporate management is an advantage to a corporation because it can hire professionalmanagers to run the company. Corporate management is a disadvantage to a corporationbecause 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 lawsprescribe the requirements for issuing stock, and federal securities laws govern the sale ofstock 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 di-vidends received.3.Ann is incorrect. A corporation must be incorporated in only one state. It is to the company’sadvantage to incorporate in a state whose laws are favorable to the corporate form of businessorganization. A corporation may incorporate in a state in which it does not have a headquartersoffice or major operating facilities.4.In the absence of restrictive provisions, the basic ownership rights of common stockholders arethe rights to:(1)vote in the election of the board of directors and in corporate actions that require stockholders’approval.(2)share in corporate earnings.(3)maintain the same percentage ownership when additional shares of common stock are issued(the preemptive right).(4)share in assets upon liquidation.5.Legally, a corporation is an entity, separate and distinct from its owners. As a legal entity, acorporation possesses most of the privileges and is subject to the same duties and responsibilit-ies as a natural person. The corporation acts under its own name rather than under the names ofits stockholders. A corporation may buy, own, and sell property, borrow money, enter into legallybinding contracts, and sue or be sued.6.The principal components of stockholders’ equity for a corporation are paid-in capital and retainedearnings.
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Questions Chapter 11(Continued)7.The maximum number of shares that a corporation is legally allowed to issue is the number au-thorized. Clio Corporation is authorized to sell 100,000 shares. Of these shares, 60,000 shareshave been issued. Outstanding shares are those issued shares which have not been reacquiredby the corporation; in other words, issued shares less treasury shares. Clio has 56,000 sharesoutstanding (60,000 issued less 4,000 treasury).8.The par value of common stock has no effect on its market value. Par value used to be a legalamount per share which usually indicates the minimum amount at which a share of stock can be

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