Question

The major characteristics of a corporation are as follows:

• Separate legal existence
• Limited liability of shareholders
• Transferable ownerships rights
• Ability to acquire capital
• Continuous life
• Government regulations
• Corporate income tax

The following items pertain to one of the characteristics of the corporate form of organization. For each item below, identify:

(a) whether it represents an advantage or disadvantage, and
(b) the characteristic that pertains to the item. (Note: a characteristic can be used more than once.)

(a)
Advantage / Disadvantage (b)
Characteristics
1. A corporation can continue to operate even if all of its shareholders have been replaced

Disadvantage
Advantage

Limited liability of shareholders
Transferable ownerships rights
Government regulations
Corporate income tax
Ability to acquire capital
Separate legal existence
Continuous life
2. A corporation is a going concern

Disadvantage
Advantage

Transferable ownerships rights
Corporate income tax
Government regulations
Separate legal existence
Limited liability of shareholders
Ability to acquire capital
Continuous life
3. Buying shares is an attractive way for individuals to invest in a company because the cash requirement is often very small

Advantage
Disadvantage

Corporate income tax
Limited liability of shareholders
Continuous life
Separate legal existence
Government regulations
Transferable ownerships rights
Ability to acquire capital
4. Corporations issue shares in order to obtain capital (cash)

Advantage
Disadvantage

Separate legal existence
Limited liability of shareholders
Transferable ownerships rights
Corporate income tax
Ability to acquire capital
Continuous life
Government regulations
5. In private corporations, creditors may demand a personal guarantee from a controlling shareholder

Disadvantage
Advantage

Continuous life
Separate legal existence
Limited liability of shareholders
Government regulations
Corporate income tax
Transferable ownerships rights
Ability to acquire capital
6. Laws specify the requirements for issuing shares, distributing income to shareholders, and reacquiring shares

Disadvantage
Advantage

Transferable ownerships rights
Government regulations
Ability to acquire capital
Separate legal existence
Limited liability of shareholders
Continuous life
Corporate income tax
7. No journal entry is required if a shareholder sells his or her shares to another investor

Disadvantage
Advantage

Corporate income tax
Separate legal existence
Ability to acquire capital
Limited liability of shareholders
Continuous life
Government regulations
Transferable ownerships rights
8. Respecting international, federal, provincial, and securities rules increases costs and complexity for corporations

Advantage
Disadvantage

Transferable ownerships rights
Ability to acquire capital
Separate legal existence
Corporate income tax
Continuous life
Government regulations
Limited liability of shareholders
9. Shareholders cannot be made to pay for the company's liabilities out of their personal assets

Advantage
Disadvantage

Ability to acquire capital
Limited liability of shareholders
Transferable ownerships rights
Separate legal existence
Continuous life
Government regulations
Corporate income tax
10. Shareholders may dispose of their interest in a corporation simply by selling their shares

Advantage
Disadvantage

Limited liability of shareholders
Government regulations
Separate legal existence
Continuous life
Corporate income tax
Transferable ownerships rights
Ability to acquire capital
11. Shareholders only pay income tax on corporation profits when they receive dividends

Advantage
Disadvantage

Transferable ownerships rights
Continuous life
Ability to acquire capital
Government regulations
Limited liability of shareholders
Separate legal existence
Corporate income tax
12. The corporation acts under its own name

Disadvantage
Advantage

Continuous life
Limited liability of shareholders
Transferable ownerships rights
Ability to acquire capital
Government regulations
Corporate income tax
Separate legal existence
13. The corporation may buy, own and sell property

Disadvantage
Advantage

Transferable ownerships rights
Government regulations
Separate legal existence
Corporate income tax
Ability to acquire capital
Limited liability of shareholders
Continuous life
14. The liability of each shareholder is limited to the amount invested in the shares of the corporation

Advantage
Disadvantage

Continuous life
Ability to acquire capital
Separate legal existence
Limited liability of shareholders
Transferable ownerships rights
Government regulations
Corporate income tax
15. The sale of shares from one individual to another does not affect the corporation assets, liabilities, and total equity

Advantage
Disadvantage

Separate legal existence
Transferable ownerships rights
Continuous life
Government regulations
Corporate income tax
Limited liability of shareholders
Ability to acquire capital

Answer 1

1) a. Advantage. b. Separate legal existence

2) a. Advantage. b. Continuous life.

3) a. Advantage. b. Limited liability of shareholders

4) a. Advantage b. Ability to acquire capital

5) a. Disadvantage. b. Limited liability of shareholders (because of limited liability creditors needs security so that they won't suffer loss)

6) a. Disadvantage. b. Government regulations (government implements laws on corporation which protects the shareholders but corporation suffers a little)

7) a. Advantage. b. Transferable ownership right

8) a. Disadvantage b. Government regulations

9) a. Advantage b. Limited liability of shareholders

10) a. Advantage. b. Transferable ownerships rights

11) a. Advantage. b. Corporate income tax (shareholders have to pay tax on the dividends received from corporation)

12) a. Advantage. b. Separate legal existence

13) a. Advantage b. Separate legal existence

14) a.Advantage b. Limited liability of shareholders

15) a. Advantage b. Transferable ownerships rights