Essay Chapter 14: Corporations
February 2, 2009
A corporation is a legal entity, meaning it is a separate entity from its owners who are called stockholders. A corporation is treated as a “person” with most of the rights and obligations of a real person. A corporation is not allowed to hold public office or vote, but it does pay income taxes. To be recognized as a corporation, a business must file an application that includes the corporation's articles of incorporation (charter) with the State, pay an incorporation fee, and be approved by the State. Once the approval is received, the corporation must develop its bylaws. Ownership in a corporation is represented by stock certificates, which is why the owners are called stockholders.
Following are some of a corporation characteristic: unlimited life, limited liability, and separate legal entity. As a corporation is owned by stockholders and managed by employees, the sale of stock, or death of a stockholder does not impact the continuous life of the corporation. The liabilities of stockholders are limited to the amount each has invested in the corporation. Creditors are limited to corporate assets for satisfaction of their claims. The corporation is considered a separate legal entity, conducting business in its own name. Therefore, corporations may own property, borrow money, sue and be sued and pay taxes.
A corporation's life begins when the articles of incorporation are filed with the Secretary of State in the state where you wish to incorporate. What is the difference between paid-in capital and retained earnings? Paid-in capital refers to the capital contributed to a corporation by investors. It is the total amount of cash received by a corporation for issued stock. Retained earnings refer to the portion of net income which is retained by the corporation. A treasury stock or reacquired stock is stock which is bought back by the issuing company, reducing the amount of...