After studying this chapter you will be able to: Identify and discuss the major characteristics of a corporation, understand the Components of Stockholders’ Equity, record the issuance of common stock, explain the accounting for the purchase of treasury stock, differentiate preferred stock from common stock,. | CORPORATION is: Separate Legal Entity created by law - Enter into contracts - Declare bankruptcy - Corporation pays tax on net income - Shareholders pay tax only if dividends are paid - Continuous life Not hard to form - File for state charter - Articles, By-laws, Initial stockholders - Authorization to issue stock 1 Corporations and Stockholders Equity 11 The Corporate Form of Organization 2 Stockholders-shareholders (publicly or privately-closely held) Shares owned / Total Shares = % owned by each stockholder Elect Representatives. Board of Directors (BOD) Control & Guide Business Appoint Managers Officers CEO/ CFO / President / Vice President / Etc Run day to day operations of business and carry out BOD directions. Owned by Corporation - Legal Entity Protect shareholders personal assets - Only investment in stock is at risk - Enter risky businesses Raise money Tax planning Ease of changing / transferring ownership 3 Advantages of Incorporating Regulations, paperwork Tax traps (Double TAX) Corp earns $, pays tax. Pay out to shareholders, then they pay tax again. U Make It - We Take It IRS 4 Disadvantages of Incorporating S corporation: - 100 shareholder maximum - Regular corporation first, then shareholders elect subchapter S status with the IRS. - Result: NO TAX paid by corporation on income. - The catch: Shareholders must each claim their share of corporate income on their tax returns even if not distributed via dividends to them. - Dividend distributions are not taxable - Called a “flow through” entity. 5 Alternatives to regular corporate form: Limited Liability Company or Partnership (LLC, LLP) - Relatively new type of entity. - Owner protection like corporations - Set up process is similar to corporations - Also flow through entities - No maximum number of “members” Also from chapter 1: Sole Proprietorship, General Partnership 6 Alternatives to regular corporate form: Stock must be authorized by state for sale. Issued stock was sold, given or . | CORPORATION is: Separate Legal Entity created by law - Enter into contracts - Declare bankruptcy - Corporation pays tax on net income - Shareholders pay tax only if dividends are paid - Continuous life Not hard to form - File for state charter - Articles, By-laws, Initial stockholders - Authorization to issue stock 1 Corporations and Stockholders Equity 11 The Corporate Form of Organization 2 Stockholders-shareholders (publicly or privately-closely held) Shares owned / Total Shares = % owned by each stockholder Elect Representatives. Board of Directors (BOD) Control & Guide Business Appoint Managers Officers CEO/ CFO / President / Vice President / Etc Run day to day operations of business and carry out BOD directions. Owned by Corporation - Legal Entity Protect shareholders personal assets - Only investment in stock is at risk - Enter risky businesses Raise money Tax planning Ease of changing / transferring ownership 3 Advantages of Incorporating Regulations, paperwork .
