Question

Of the following statements, which are true for the corporate form of organization? (you may select more than one)

1. Directors oversee its business affairs.unchecked

2. Stockholders do not have the power to bind the corporation to contracts.unchecked

3.It has a continuous life.unchecked

4.Transfer of ownership rights among owners generally does not impact equity.unchecked

5.Compared to other forms of organization- capital (financing) is more difficult to accumulate.unchecked

6.Generally there is no double taxation on corporate income that is distributed to owners.unchecked

7.It is not a separate legal entity from its owners.unchecked

Answer 1

Which statements are true :

1) Directors oversee it's business affairs.

Explanation : Because directors are responsible for the performance of the company. They are answerable in annual general meeting for the non performance of the company in front of the shareholders.

2) Stockholder's don't have the power to bind the corporation to contracts.

Explanation : This power is only remains in the hand of board of directors. Stockholder's select board of directors to run the company, they don't have any power to bind the whole company to make any contract because board of directors are being given the whole authority to do the business and they take any decision for the sake of the company.

3) It has a continuous life.

Explanation : Entry and exist of any shareholders doesn't effect the company . It has perpetual succession .

4) Transfer of ownership rights among owner's generally doesn't impact equity .

Explanation : Transfer of shares from one shareholder to another doesn't affect the book value of equity in the balance sheet . Regularly in stock market transfer of ownership rights are taking place but it doesn't not impact on the equity section of the balance sheet .

Why the rest statements are false :

5) Compared to other forms of organizations capital (Financing ) is more difficult to accumulate.

Explanation : Compared to other form of organizations, corporate's may have more versatile financing options. Like - Issue of common stock, preferred stock, bonds, right issue, inter corporate deposits and so on.

6) Generally there is no double taxation on corporate income that is distributed to owners.

Explanation : Corporation pay tax on their income as well as shareholder's pay tax on dividend distributed to them. Here tax levied on corporate and personal level.

7) It is not a separate legal entity from its owners.

Explanation : It is a separate legal entity. Owners and corporation both are legally distinct entity as per the preview of law.