Week 3 Individual Assignment Discussion Question
Week 3 Discussion Questions
Accounting 291
April 10, 2014
1. Why does a company choose to form as a corporation? What are the steps required to become a corporation? What are the advantages and disadvantages of the corporate form of doing business?
Our textbook lists the following as reasons why a company may choose to form a corporation the list includes those which may prove to be at a disadvantage.
a. Separate Legal Existence – A corporation will not act under the name of the stockholders it may borrow money a lot easier, and will enter into binding contracts under its own name.
b. Limited Liability of Stockholders – Creditors cannot have a legal claim on the personal assets of the owners unless fraud occurs.
c. Transferable Ownership Rights – A shareholder may sell their stock without the approval of consultations of the other stockholders.
d. Ability to Acquire Capital – A corporation may issue stock in order to obtain capital almost at any time when needed.
e. Continuous Life – The life of a corporation is noted by its charter and is not affected by the death or incapacity of a stockholder, employee or officer.
f. Corporation Management – Stockholders manage the Corporation indirectly through a board of directors they elect.
g. Government Regulations – A Corporation is subject to numerous state and federal regulations which include requirements for issuing stock, distribution of earnings permitted to stockholders and acceptable methods for retiring stock.
h. Additional Taxes – A corporation must file taxes at a federal and state level where the taxes can sometimes amount to 40%. Also, stockholders are required to pay taxes on cash dividends, once at the corporate level and again at the personal level.
The last three reasons (f, g & h) are a disadvantage for a corporation while the first five (5) (a, b, c, d & e) are an advantage to a corporation.
There are four steps to follow when becoming a corporation:
1. File
Accounting 291
April 10, 2014
1. Why does a company choose to form as a corporation? What are the steps required to become a corporation? What are the advantages and disadvantages of the corporate form of doing business?
Our textbook lists the following as reasons why a company may choose to form a corporation the list includes those which may prove to be at a disadvantage.
a. Separate Legal Existence – A corporation will not act under the name of the stockholders it may borrow money a lot easier, and will enter into binding contracts under its own name.
b. Limited Liability of Stockholders – Creditors cannot have a legal claim on the personal assets of the owners unless fraud occurs.
c. Transferable Ownership Rights – A shareholder may sell their stock without the approval of consultations of the other stockholders.
d. Ability to Acquire Capital – A corporation may issue stock in order to obtain capital almost at any time when needed.
e. Continuous Life – The life of a corporation is noted by its charter and is not affected by the death or incapacity of a stockholder, employee or officer.
f. Corporation Management – Stockholders manage the Corporation indirectly through a board of directors they elect.
g. Government Regulations – A Corporation is subject to numerous state and federal regulations which include requirements for issuing stock, distribution of earnings permitted to stockholders and acceptable methods for retiring stock.
h. Additional Taxes – A corporation must file taxes at a federal and state level where the taxes can sometimes amount to 40%. Also, stockholders are required to pay taxes on cash dividends, once at the corporate level and again at the personal level.
The last three reasons (f, g & h) are a disadvantage for a corporation while the first five (5) (a, b, c, d & e) are an advantage to a corporation.
There are four steps to follow when becoming a corporation:
1. File
References: Weygandt, J.J., Kimmel, P.D., & Kieso, D.E. (2010). Financial accounting (7th ed.). Hoboken, NJ: John Wiley & Sons.