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What are the basic ownership rights of common stockholders in the absence of restrictive provisions and what factors help determine the market value of stock?

2. (a) Your friend Dick Wasson cannot understand how the characteristic of corporation management is both an advantage and a disadvantage. Clarify this problem for Dick.
(b) Identify and explain two other disadvantages of a corporation.

4. What are the basic ownership rights of common stockholders in the absence of restrictive provisions?

9. What factors help determine the market value of stock?

23. The board of directors is considering a stock split or a stock dividend. They understand that total stockholders' equity will remain the same under either action. However, they are not sure of the different effects of the two types of actions on other aspects of stockholders' equity.
Explain the differences to the directors.

32. What is the cost of an investment in stock?

34. (a) When should a long-term investment in common stock be accounted for by the equity method? (b) When is revenue recognized under this method?

44. What is the proper statement presentation of the account Unrealized Loss-Equity?

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2. (a) Your friend Dick Wasson cannot understand how the characteristic of corporation management is both an advantage and a disadvantage. Clarify this problem for Dick.
(b) Identify and explain two other disadvantages of a corporation.
Advantages of a C Corporation
· The corporation is a separate legal entity, and if it is adequately capitalized and proper corporate formalities are followed, the shareholders should generally have liability protection from the debts and obligations of the corporation
· Corporations can utilize corporate benefit health plans, which often offer better retirement options and benefits than those offered by non-corporate plans
· 100% deductible health insurance for all employees as well as group term life insurance up to a specified amount per employee
· If a stockholder dies or wishes to sell out, the corporation continues
· Easier to raise capital as a corporation than as a sole proprietorship or partnership
· Can offer employee incentive stock plans
1. The corporation is an expensive way of doing business. The cost varies based upon the amount and type of stock to be authorized and issued, the size of the planned corporation, the amount of business done, and the type of labor force needed. In addition, initial incorporation costs, including filing fees, organization taxes, and legal and accounting expenses, can be costly.
2. Shareholders have limited liability in most cases. This limited liability is not absolute and a corporate shareholder can still be liable for the full price of his corporate stock if the stock was originally purchased at a discount. As previously stated, shareholders are also liable in most states for unpaid wages.
3. The corporation is subject to greater governmental regulation and control than any other form of doing business. There are more rules and restrictions that must be followed.
4. The corporation is subject to double taxation, once at the corporate level, and again at the shareholder level when a distribution of profits, called dividends, are made to shareholders. However, the Internal Revenue Code offers certain tax breaks, such as the S corporation election, that can reduce and even eliminate taxes at the corporate level.
5. Majority shareholders (persons owing most of the shares) may be in a position to make business decisions that are not in the best interests of the minority shareholders. This danger is greater in close corporations that have three to five shareholders that may have different ideas about running the corporation and what product or services to sell.
6. The right to influence corporate matters by owning voting shares may be reduced where there is a widespread or increased ownership of corporate stock.
7. Management and control of the corporation rests with the duly elected directors and officers and are, thus, separate from the shareholders who are the true owners of the corporation.
8. The corporation is not protected by the Fifth Amendment's guarantee against self-incrimination. This privilege is purely a personal one available only to individuals.
9. Corporate operations are governed both by state law and the articles of incorporation, or charter of the corporation. Thus, a corporation may be liable for ultra vires acts (i.e., those not authorized by the corporate charter). It is essential that the lawyer who forms the corporation write the corporate charter in the broadest operating terms possible.
· Disadvantages of a C Corporation
· "Double taxation." This means that besides paying corporate income taxes, any dividends to shareholders are taxed again at the applicable tax rate.
· Formalities and regulations must be followed very closely in conjunction with the laws regarding incorporating in a specific state. Failure to do so can create a situation where shareholders may be held liable.
· Costlier to start than a sole proprietorship or partnership
· More time and effort to maintain
While the idea of double taxation is very troublesome to many new business owners, it is not usually significant for small businesses, where it is unlikely that there will be large dividend payouts. Rather, the money is paid out in the form of salaries and benefits. As the owner, you can pay yourself a reasonable salary and handle any number of duties in the corporation. By incorporating, you have the luxury of leaving some of the money in the corporation if you foresee significant personal income from other sources. This way you can reduce your own personal income tax payments.
Taking the time, making the effort and paying the additional expenses to incorporate are usually considered worthwhile by a business that foresees potential liabilities and/or seeks investors.
4. What are the basic ownership rights of common stockholders in the absence of restrictive provisions
Rights of the shareholders:
Shareholders can elect a board of directors, usually ...

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