Chapter 11, Problem 1Q

To determine

Corporation: A business concern where there is a separate legal entity, and are owned by shareholders, are classified as corporation. Transfer of ownership and raising funds are easy in this form of organization. The liabilities of the stockholders to its creditors are limited up to their invested capital amount in the corporation.

To explain: The given terms.

Explanation of Solution

(a) Separate legal existence

A Corporation has a separate legal existence. It means that the ownership and management are two separate bodies in a corporation. It is not identified by the name of the owners rather identified by its own name.  The real owners of the corporation are the shareholders who invest money in the corporation. However, they do not participate in the management of the corporation’s business activities.

(b) Limited liability of stockholders

The liability of a corporation is limited. It means that the liability of a stockholders is limited only to the extent of their investment amount. This is because, a corporation is a separate legal entity. Thus, the corporation is liable to settle all its debts and obligations from the assets available in the corporation.

(c) Transferable ownership rights

The stockholders gain ownership of a corporation by buying its shares. Being the owners, the stockholders have the complete right to sell a part or all of their shares and thus, easily transfer their ownership to another party without disturbing the normal business operations of a corporation.