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Financial Accounting 10th Edition

Financial Accounting (10th Edition)

Book Edition10th Edition
Author(s)Libby, Libby
PublisherMcGraw-Hill, Inc.

Chapter 11, End of Chapter, Questions, Exercise 1

Page 594


Corporations are formed by a group of people who enter into the business to generate profits. It is created by the promoters who also own shares of the corporation. The corporation has a separate legal identity from its owners and promoters. It may enter into contracts, sue and get sued, purchase and own assets, pay taxes, and borrow capital as debt or raise equity in their own name.


The main advantages are as follows:

  • Ownership can be transfer through the sale of shares.
  • Owners or the stockholders have limited liability.
  • A large amount of capital may be raised, as any kind of investor, whether big or small, may purchase the shares.

Verified Answer

The corporation is a legal entity that has a distinct presence and is separate from the owners.


The advantages of a corporation are as follows:

  • Transfer of ownership
  • Limited liability
  • Potential to raise huge amount of funds
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