Characteristics of a Corporation quiz #1 Flashcards
Characteristics of a Corporation quiz #1
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What is a corporation in terms of its legal status compared to its owners?
A corporation is a separate legal entity from its owners, meaning it exists independently and is distinct from the individuals who own it. What are the main advantages of forming a corporation?
The main advantages are unlimited life, easy transferability of ownership, and limited liability for owners. What does 'unlimited life' mean for a corporation?
Unlimited life means the corporation continues to exist even if ownership changes, as the entity is separate from its owners. How does the transferability of ownership work in a corporation?
Ownership in a corporation is easily transferred by buying or selling shares of stock, without affecting the corporation's operations. What is limited liability in the context of a corporation?
Limited liability means that shareholders are only liable for the amount they invested and are not personally responsible for the corporation's debts. What is double taxation and how does it affect corporations?
Double taxation means that corporate earnings are taxed at the corporate level and again at the shareholder level when distributed as dividends. What are some disadvantages of the corporate form of business?
Disadvantages include double taxation, extensive government regulation, and the separation of ownership and management. How does the separation of ownership and management serve as both an advantage and a disadvantage for corporations?
It allows owners to invest without managing the business, but also means they have less control over daily operations. What steps are involved in creating a corporation?
Creating a corporation involves filing paperwork, signing a charter, paying fees, and filing with a state of incorporation. Why is Delaware a popular state for incorporating businesses?
Delaware is popular due to its favorable and flexible corporate laws. What are corporate bylaws?
Bylaws are the internal rules or constitution of a corporation, governing its operations and resolving internal issues. Who are the incorporators of a corporation?
Incorporators are the founders who initiate the process of forming the corporation. Describe the basic authority structure of a corporation.
Stockholders elect the board of directors, who oversee management led by the CEO and other officers. What is the role of the board of directors in a corporation?
The board of directors makes major decisions and oversees the management of the corporation. Who typically leads the management team in a corporation?
The Chief Executive Officer (CEO) typically leads the management team. What is the function of the Chief Operating Officer (COO) in a corporation?
The COO oversees the day-to-day operations and manages other executives and departments. How do stockholders influence the management of a corporation?
Stockholders influence management by electing the board of directors. What voting rights do stockholders have?
Stockholders have the right to vote for the board of directors and on major corporate decisions like mergers. How are dividends distributed to stockholders?
Dividends are distributed to stockholders in proportion to the number of shares they own. What happens to stockholders during the liquidation of a corporation?
After liabilities are paid, remaining assets are distributed to stockholders according to their ownership percentage. What is the preemptive right of a stockholder?
The preemptive right allows stockholders to maintain their ownership percentage by purchasing a proportionate share of new stock issues. How does the preemptive right protect existing stockholders?
It prevents dilution of their ownership by giving them the first opportunity to buy new shares. If a stockholder owns 1% of a company and new shares are issued, what does the preemptive right allow?
It allows the stockholder to purchase 1% of the new shares to maintain their 1% ownership. What happens if a stockholder does not exercise their preemptive right?
Their ownership percentage in the corporation will decrease (be diluted). Why might a corporation issue new shares of stock?
To raise additional capital for business operations or expansion. What is the main purpose of corporate bylaws?
To provide a set of rules for the corporation's internal management and decision-making. Who is responsible for adopting the bylaws of a corporation?
The incorporators or the initial board of directors adopt the bylaws. What is the significance of the state of incorporation for a corporation?
The corporation is governed by the laws of its state of incorporation, which can affect its operations and legal requirements. How does limited liability benefit investors in a corporation?
Investors can only lose the amount they invested and are not personally responsible for corporate debts. What is meant by the 'separation of ownership and management' in a corporation?
Owners (stockholders) do not manage daily operations; instead, professional managers run the company. How does the transferability of shares contribute to a corporation's unlimited life?
Shares can be bought and sold without affecting the corporation's existence, allowing it to continue indefinitely. What is the role of the Chief Financial Officer (CFO) in a corporation?
The CFO oversees the corporation's financial activities, including accounting and financial planning. What is the function of the treasurer in a corporation?
The treasurer manages the corporation's cash, investments, and financial risk. How does government regulation impact corporations?
Corporations face extensive government regulation, which can increase compliance costs and complexity. What is the process for electing the board of directors in a corporation?
Stockholders vote to elect the board of directors, typically on a one-share, one-vote basis. What rights do stockholders have in the event of a corporate merger?
Stockholders usually have the right to vote on major decisions such as mergers. What is the main responsibility of the board of directors?
To oversee the corporation's management and make major policy decisions. How does the issuance of new shares affect existing stockholders?
It can dilute their ownership percentage unless they exercise their preemptive right. What is the typical size of a corporation's board of directors?
A board of directors usually consists of 7 to 9 members. What is the relationship between stockholders and the board of directors?
Stockholders elect the board of directors to represent their interests in managing the corporation.
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