In this chapter, students will be able to understand: Discuss the advantages and disadvantages of organizing a business as a corporation; distinguish between publicly owned and closely held corporations; explain the rights of stockholders and the roles of corporate directors and officers;. | Stockholders’ Equity: Paid-In Capital Chapter 11 Chapter 11: Stockholders’ Equity: Paid-In Capital Existence is separate from owners. An entity created by law. Has rights and privileges. Privately, or Closely Held Publicly Held Ownership can be Corporations Corporations are entities created by law that exist separately from their owners and have rights and privileges. Ownership in a corporation can be publicly or privately held. Owners of a corporation are called stockholders. The assets of a corporation belong to the corporation itself, not to the stockholders. The corporation is responsible for its own debts and must pay income taxes on its earnings. Limited personal liability for stockholders Transferability of ownership Professional management Continuity of existence Advantages of Incorporation The corporate form of organization has several advantages. Corporations are separate legal entities that can enter into contracts, sue, and be sued. Stockholders’ losses are limited to the amount invested in the corporation. Ownership rights are transferable. Most corporations have a professional management team that runs the business on a day-to-day basis. The corporation continues to exist even when ownership changes. Heavy taxation Greater regulation Cost of formation Separation of ownership and management Disadvantages of Incorporation There are also several disadvantages of incorporation. There are extra governmental regulations imposed on corporations and corporate taxation of earnings. Corporations pay taxes on their earnings and if they distribute a dividend to stockholders, the stockholders pay taxes on the dividends received. This is sometimes referred to as double taxation. It’s also costly to form a corporation. And, the separation of stockholder owners from management can create problems as well if management does not act in the best interest of the owners, but rather in the best interest of the management team. The costs associated with incorporation are . | Stockholders’ Equity: Paid-In Capital Chapter 11 Chapter 11: Stockholders’ Equity: Paid-In Capital Existence is separate from owners. An entity created by law. Has rights and privileges. Privately, or Closely Held Publicly Held Ownership can be Corporations Corporations are entities created by law that exist separately from their owners and have rights and privileges. Ownership in a corporation can be publicly or privately held. Owners of a corporation are called stockholders. The assets of a corporation belong to the corporation itself, not to the stockholders. The corporation is responsible for its own debts and must pay income taxes on its earnings. Limited personal liability for stockholders Transferability of ownership Professional management Continuity of existence Advantages of Incorporation The corporate form of organization has several advantages. Corporations are separate legal entities that can enter into contracts, sue, and be sued. Stockholders’ losses are limited to the
