1. What is the legal definition of a corporation?

2. How is ownership in a corporation evidenced?

3. Who are the owners of a corporation called?

4. How can corporations be classified based on their purpose?

5. What distinguishes a not-for-profit corporation from a for-profit corporation?

6. What is the difference between a public corporation and a non-public corporation?

7. Why is creating a corporation more costly than organizing a proprietorship or partnership?

8. What are some examples of organization costs?

9. How are organization costs accounted for?

10. What does it mean for a corporation to have a separate legal existence?

11. How does limited liability protect stockholders?

12. What is meant by transferable ownership rights in a corporation?

13. How do corporations benefit from the ability to easily acquire capital?

14. Explain the concept of continuous life for a corporation.

15. How do stockholders manage a corporation indirectly?

16. What role does the board of directors play in a corporation?

17. What government regulations must corporations adhere to?

18. Why are corporations subject to additional taxes compared to other business entities?

19. What information is typically included in the articles of incorporation?

20. What are the components of stockholders' equity on a corporation's balance sheet?

21. How is the stockholders' investment divided and evidenced?

22. What is capital stock?

23. What must a corporation do if it wants to issue more shares than it is authorized to sell?

24. Why does the authorization of common stock not result in a formal accounting entry?
25. Where is the number of authorized shares disclosed?

26. What factors must a corporation consider when deciding the number of shares to authorize for sale?

27. What are the two methods a corporation can use to issue its stock?

28. What factors influence the price of a new issue of stock?

29. What is par value stock, and how is its par value determined?

30. What is no-par value stock, and how is its legal capital determined?

31. What are the major basic rights that accompany ownership of a share of stock?

32. How does common stock differ from preferred stock?

33. Why might a corporation choose to issue preferred stock?

34. How do shareholders manage their organization indirectly?

35. What authority does the board of directors have in relation to distributing earnings?

36. Can a corporation guarantee dividends to its stockholders? Why or why not?

Answer

1. What is the legal definition of a corporation?**

- A corporation is a separate legal entity chartered under law. It is recognized as a 'new person' with
similar rights and obligations that a real person would have.

2. How is ownership in a corporation evidenced?**

- Ownership in a corporation is evidenced by a transferable share of stock.

3. Who are the owners of a corporation called?**

- The owners of a corporation are called stockholders, shareholders, or stock owners.

4. How can corporations be classified based on their purpose?**

- Corporations can be classified as not-for-profit or for-profit based on their purpose.

5. What distinguishes a not-for-profit corporation from a for-profit corporation?**

- Not-for-profit corporations are organized for recreational, educational, charitable, or other

philanthropic purposes, while for-profit corporations are engaged in business activities.

6. What is the difference between a public corporation and a non-public corporation?**

 - Public corporations have shares of stocks that are widely distributed and traded in public markets
and may have thousands of stockholders. Non-public corporations have shares owned by a small group
of individuals.

7. Why is creating a corporation more costly than organizing a proprietorship or partnership?

- Creating a corporation is more costly due to the expenditures incurred to organize it, such as
attorney’s fees, fees paid to the government, and costs of promoting the enterprise.

8. What are some examples of organization costs?

- Examples include attorney’s fees, fees paid to the government, and costs of promoting the
enterprise.

9. How are organization costs accounted for?**

- Organization costs are charged to an intangible asset account called Organization Costs and are
typically amortized.

10. What does it mean for a corporation to have a separate legal existence?**

- It means the corporation is an entity separate and distinct from its owners, acts under its own name,
and can buy, own, sell property, borrow money, enter into contracts, sue, be sued, and pay its own
taxes.

11. How does limited liability protect stockholders?**

- Limited liability means that creditors have recourse only to corporate assets to satisfy claims and
stockholders' liability is limited to the extent of their investment in the corporation.

12. What is meant by transferable ownership rights in a corporation?**

- It means ownership is evidenced by shares of stock, which are transferable units, and the transfer of
ownership rights among stockholders does not affect the corporation’s operating activities or its
financial position.

13. How do corporations benefit from the ability to easily acquire capital?**

- The limited liability of stockholders and the ease of transferring ownership rights make it easier for
corporations to raise capital.

14. Explain the concept of continuous life for a corporation.**

- The life of a corporation is stated in its charter and may be perpetual or limited to a specific number
of years. If limited, it can be extended through renewal of the charter. The corporation’s existence is not
affected by the withdrawal, death, or incapacity of stockholders.

15. How do stockholders manage a corporation indirectly?**

 - Stockholders manage the corporation indirectly by electing a board of directors, which formulates
policies and selects officers to execute these policies and manage daily operations.

16. What role does the board of directors play in a corporation?**

- The board of directors formulates operating policies, selects officers, oversees the operations of the
corporation, and has the authority to distribute earnings to stockholders.

17. What government regulations must corporations adhere to?**

- Corporations must follow requirements for issuing stock, distributions of earnings, retiring stock, and
disclosing financial affairs to the public through quarterly and annual reports.

18. Why are corporations subject to additional taxes compared to other business entities?**

- Stockholders must pay taxes on cash dividends, resulting in corporate income being taxed twice—
once at the corporate level and again at the individual level.

19. What information is typically included in the articles of incorporation?**

- The name of the corporation, the purpose of the corporation, and the types and number of stock the
corporation is authorized to sell.

20. What are the components of stockholders' equity on a corporation's balance sheet?**

- Contributed capital (stockholders' investment) and retained earnings (earnings retained in the
business).

21. How is the stockholders' investment divided and evidenced?**

- The stockholders' investment is divided into shares (stocks) and evidenced by stock certificates.

22. What is capital stock?

- Capital stock refers to the shares of ownership in a corporation.

23. What must a corporation do if it wants to issue more shares than it is authorized to sell?**

- The corporation must obtain consent from the state to amend its charter before issuing additional
shares.

24. Why does the authorization of common stock not result in a formal accounting entry?**

- Because the event has no immediate effect on corporate assets or stockholders’ equity.

25. Where is the number of authorized shares disclosed?**

- In the stockholders’ equity section of the balance sheet.

26. What factors must a corporation consider when deciding the number of shares to authorize for sale?
**

- Future earnings, expected dividend rate per share, current financial position, state of the economy,
and the securities market.

27. What are the two methods a corporation can use to issue its stock?**

- Issuing stock directly to investors or indirectly through an investment banking firm.

28. What factors influence the price of a new issue of stock?**

- The company’s anticipated future earnings, expected dividend rate per share, current financial
position, state of the economy, and the securities market.

29. What is par value stock, and how is its par value determined?**

- Par value stock is capital stock that has been assigned a value per share in the corporate charter. The
par value is chosen by the corporation and is typically low to minimize state taxes.

30. What is no-par value stock, and how is its legal capital determined?**

- No-par value stock has not been assigned a value per share in the corporate charter. The legal capital
is determined by the entire proceeds received upon issuance of the stock or any stated value assigned
by the board of directors.

31. What are the major basic rights that accompany ownership of a share of stock?**

- The right to vote, the right to share in the distribution of earnings, the preemptive right, and the
right to share in assets upon liquidation.

32. How does common stock differ from preferred stock?**

- Common stock generally has equal rights for each share, while preferred stock gives certain
preferences over common stockholders, especially in receiving dividends.

33. Why might a corporation choose to issue preferred stock?**

- To attract investors by offering them certain preferences over common stockholders.

34. How do shareholders manage their organization indirectly?**

- By electing the board of directors, which in turn elects the officers of the corporation and oversees
its operations.

35. What authority does the board of directors have in relation to distributing earnings?**
 - The board of directors has the sole authority to distribute earnings to the stockholders through
dividends.

36. Can a corporation guarantee dividends to its stockholders? Why or why not?**

- No, a corporation cannot guarantee dividends because its operations might not always be profitable,
and the directors have discretion over how much of the earnings to retain for future use or expansion.