Financial Accounting Ch.13 Part 1 (Characteristics of a Corporation)

Government regulations

A corporation is subject to numerous state and federal regulations.

Continuous life

Corporations have an indefinite life. They can exist until the business decides to terminate. Withdrawal or death of an owner does not cause termination.

Additional taxes

Corporations must pay federal and state income taxes as a separate legal entity. These taxes are substantial; they can amount to more than 40% of taxable income

Separate legal existence

As an entity separate and distinct from its owners, the corporation acts under its own name rather than in the name of its stockholders.

Transferable ownership rights

Ownership of a corporation is held in shares of capital stock, which are transferable units

Limited liability of stockholders

Since a corporation is a separate legal entity, creditors have recourse only to corporate assets to satisfy their claims. UNLESS- the shareholder/s guarantee the debts of the company.

Corporation management (can be separate from ownership)

Stockholders legally own the corporation, but they manage the corporation indirectly through a board of directors they elect. The board, in turn, formulates operating policies and also selects officers to execute policy and to perform daily management functions. However, in small private companies management and ownership are one and the same.

publicly held corporation

may have thousands of stockholders, and its stock is traded on a national securities exchange. Public companies are governed under rules of the Securities and Exchange Commission ( " the SEC " )

privately held corporation

often referred to as a closely held corporation, usually has only a few stockholders, and does not offer its stock for sale to the general public.