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GLENCOE / McGraw-Hill

GLENCOE / McGraw-Hill. Corporations: Formation and Capital Stock Transactions. Forming a Corporation. Section Objectives. Explain the characteristics of a corporation. Describe special “hybrid” organizations that have some characteristics of partnerships and corporations. Page. 724.

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GLENCOE / McGraw-Hill

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  1. GLENCOE / McGraw-Hill

  2. Corporations: Formation and Capital Stock Transactions

  3. Forming a Corporation Section Objectives • Explain the characteristics of a corporation. • Describe special “hybrid” organizations that have some characteristics of partnerships and corporations.

  4. Page 724 Characteristics of a Corporation • Created by corporate charter issued by state government • Can enter into contracts and own property • Can have few or many owners • Can be privately held or publicly held

  5. QUESTION: What is a corporate charter? ANSWER: A corporate charter is a document issued by a state government that establishes a corporation. Page 724

  6. Page 726 Corporate Charter • Issued by the state • Permits the proposed corporation to do business • Specifies the corporation’s • exact name • length of life • rights and duties • scope of operations • Establishes stock classes

  7. QUESTION: What is a shareholder? ANSWER: A shareholder owns shares of stock in a corporation and is thus one of the owners of the corporation. Page 724 Also known as a stockholder.

  8. Advantages Disadvantages Page 724 Corporations • Limited liability • Corporate income tax • Governmental regulation • Restricted agency • Continuous existence • Transferability of ownership rights • Ease of raising capital

  9. Page 725 “Hybrid” Business Entities • Subchapter S corporation • Limited liability partnership (LLP) • Limited liability company (LLC) Hybrid entities have characteristics of partnerships and corporations.

  10. Page 725 Subchapter S Corporation • Known as Scorporation • Meets Subchapter S requirements of Internal Revenue Code to be treated as a partnership The S corporation does not pay income taxes. Shareholders include their share of corporate profits on their individual tax returns.

  11. Page 725 Advantages of the S Corporation • Limited liability • No double taxation to owners

  12. Page 725 Limited Liability Partnership (LLP) • Partners are responsible and have liability for their own actions and actions of those they control or supervise. • Partners are not liable for the actions or malfeasance of another partner.

  13. Page 726 Limited Liability Company (LLC) • Owners have limited liability. • Owners choose to have profits taxed at the company level or on their individual income tax returns. • Profits and losses can be allocated other than in proportion to ownership interest. • Transfers of ownership must be approved by owners.

  14. Page 726 Formation of a Corporation

  15. Organizers elect an acting board of directors. Shares are issued to individuals who have paid full purchase price of the stock. Shareholders elect permanent directors. Directors or shareholders approve bylaws. Board selects corporate officers. Page 726 After a Corporate Charter Is Issued Officers hire employees and begin operations.

  16. QUESTION: What are bylaws? ANSWER: Bylaws are guidelines for conducting a corporation’s business affairs. Page 727

  17. QUESTION: What is stockholders’ equity? ANSWER: Stockholders’ equity is the corporate equivalent of owner’s equity, or the financial interest of the owner(s) of a business. Page 728

  18. Stockholders Directors Officers Managers Page 728 Corporate Structure Other Employees

  19. Page 728 Stockholders • Participate in stockholder’s meetings • Elect a board of directors • Vote on corporate policy

  20. Page 728 Board of Directors • Formulates general operating policy • Ensures corporation’s activities are conducted • Appoints officers

  21. Page 728 Officers • Hire managers • Carry out policies

  22. Page 728 Managers • Make daily decisions necessary to operate the business • Hire support staff • Oversee and supervise operations

  23. R E V I E W Complete the following sentences: continuous A corporation has __________ existence. corporate A corporation is created by a _________ _______ issued by the _____ government. charter state Business entities with characteristics of partnerships and corporations are known as ______ organizations. hybrid

  24. R E V I E W Complete the following sentences: Three common hybrid organizations are: _______________________, _____________ ___________, and _____________ __________. subchapter S corporations limited liability partnerships limited liability companies limited liability company Owners of a _____________________ can elect to be taxed at the company level or at the individual level. Directors of a corporation are elected by the ____________. shareholders

  25. Thank You for using College Accounting, Tenth Edition Price • Haddock • Brock

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