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ADM 1340 CH11 TEST STUDY GUIDE
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ADM 1340 CH11 TEST STUDYGUIDE
Corporation - Answer A company organized as a separate legal entity, with most of the
rights and privileges of a person. Shares are evidence of ownership.
Public corporation - Answer - a corporation whose stock anyone may buy, sell, or trade
- may have thousands of shareholders, and its shares are publicly traded or held.
Private Corporation - Answer - a corporation owned by just one or a few people who are
closely involved in managing the business
- usually has only a few shareholders and does not offer its shares for sale to the general
public
- A private corporation has the choice of following IFRS or Accounting Standards for
Private Enterprises.
Characteristics of a corporation - Answer - separate legal existence
- limited liability of stockholders
- transferable ownership rights
- ability to acquire capital
- continuous life
- corporation management
- government regulations
- additional taxes
Separate Legal Existence - Answer - as an entity separate and distinct from its owners,
the corporation acts under its own name rather than in the name of its stockholders
- Leon's, for example, may buy, own, and sell property, borrow money, and enter into
legally binding contracts in its own name.
Limited Liability of Shareholders - Answer -A general rule of corporate law that provides
that generally shareholders are liable only to the extent of their capital contributions for
the debts and obligations of their corporation and are not personally liable for the debts
and obligations of the corporation
- The liability of shareholders is limited to their investment in the shares of the
corporation.
, - This means that, in the event that a corporation is unable to pay its liabilities, its
creditors can seize the assets of only the corporation to settle these claims; creditors
cannot require shareholders to pay for the company's liabilities using their personal
assets.
Transferable Ownership Rights - Answer - A shareholder obtains an ownership interest
in a corporation by purchasing its shares.
- Shareholders can dispose of part or all of their interest in a corporation simply by
selling their shares.
- With a public corporation, the transfer of shares is entirely up to the shareholder and is
normally done without the approval of either the corporation or other shareholders.
- In contrast, many private corporations impose limitations on the sale or transfer of
shares by shareholders.
- The transfer of shares from one stockholder to another usually has no effect on the
corporation or its operations except when this causes a change in the directors who
control or manage the corporation.
Ability to Acquire Capital - Answer - it is relatively easy for a corporation to obtain
capital through the issuance of stock
- Most individuals will never have an opportunity to invest in a private corporation, but
even with a limited amount of funds, many of us can purchase the shares of a public
company and become shareholders.
Continuous Life - Answer - continuance as a going concern is not affected by the
withdrawal, death, or incapacity of a stockholder, employee, or officer
- Corporations have an unlimited life.
- Because a corporation is a separate legal entity, it's continuance as a going concern is
not affected by the withdrawal, death, or incapacity of a shareholder, employee, or
officer.
- As a result, a successful corporation can have a very long, if not indefinite, life.
- For example, there are about 5,500 companies throughout the world that have been in
business for more than 200 years.
Corporation Management - Answer - separation of ownership and management prevents
owners from having an active role in managing the company
- Shareholders can invest in a corporation without having to manage it personally.
Although shareholders legally own the corporation, they manage it indirectly through a
board of directors they elect.
- Shareholders elect directors, who set policy and appoint officers
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