The major characteristics of a corporation are as follows:
• Separate legal existence
• Limited liability of shareholders
• Transferable ownerships rights
• Ability to acquire capital
• Continuous life
• Government regulations
• Corporate income tax
The following items pertain to one of the characteristics of the corporate form of organization. For each item below, identify:
(a) Whether it represents an advantage or disadvantage, and
(b) The characteristic that pertains to the item. (Note: a characteristic can be used more than once.)
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1. |
A corporation can continue to operate even if all of its shareholders have been replaced |
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2. |
A corporation is a going concern |
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3. |
Buying shares is an attractive way for individuals to invest in a company because the cash requirement is often very small |
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4. |
Corporations issue shares in order to obtain capital (cash) |
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5. |
In private corporations, creditors may demand a personal guarantee from a controlling shareholder |
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6. |
Laws specify the requirements for issuing shares, distributing income to shareholders, and reacquiring shares |
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7. |
No journal entry is required if a shareholder sells his or her shares to another investor |
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8. |
Respecting international, federal, provincial, and securities rules increases costs and complexity for corporations |
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9. |
Shareholders cannot be made to pay for the company’s liabilities out of their personal assets |
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10. |
Shareholders may dispose of their interest in a corporation simply by selling their shares |
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11. |
Shareholders only pay income tax on corporation profits when they receive dividends |
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12. |
The corporation acts under its own name |
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13. |
The corporation may buy, own and sell property |
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14. |
The liability of each shareholder is limited to the amount invested in the shares of the corporation |
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15. |
The sale of shares from one individual to another does not affect the corporation assets, liabilities, and total equity |
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