1. Chapter 14 - Corporations
Part 1

2. CORPORATE FORM OF ORGANIZATION
A corporation is a legal entity created by law that is separate and distinct from its owners

3. CHARACTERISTICS Separate legal existence
Limited liability of shareholders
Transferable ownership rights
Ability to acquire capital
Continuous life
Corporation management
Government regulations
Additional taxes

4. ADVANTAGES AND DISADVANTAGES OF A CORPORATION
Advantages Disadvantages
Corporate management - professional managers
Separate legal existence
Limited liability of shareholders
Deferred or reduced income taxes
Transferable ownership rights
Ability to acquire capital
Continuous life
Corporation management - ownership separated from management
Increased costs and complexity to adhere to government regulation
Potential for additional income taxes

5. ORGANIZATION COSTS
Costs incurred in forming a corporation are called organization costs.
These costs include fees to underwriters, legal fees, incorporation fees, and promotional expenditures.
Organization costs are normally expensed in the year the organization cost is incurred.

6. SHAREHOLDER RIGHTS To raise capital, the corporation sells shares
If only one class of shares-common shares
Ownership rights specified in articles of incorporation or by-laws
Voting…owners

7. SHARE TERMINOLOGY
Authorized shares – maximum amount of shares a corporation is allowed to sell as authorized by corporate charter
Issued shares – number of shares sold

8. SHARE ISSUE CONSIDERATION
How many shares should be authorized for sale?
How should the shares be issued?
At what price should the shares be issued?
What value should be assigned to the shares?

9. STOCK MARKET PRICE
Shares of publicly held companies are traded on organized exchanges at dollar prices per share established by the interaction between buyers and sellers