Corp. Basics
What is the legal term for an organization with the rights of a person that is owned by shareholders?
Corporation
The legal right for a business to conduct operations as a corporation is
a. common stock
b. the charter
c. the articles of incorporation
d. incorporation authority
b. the charter
A corporation is organized by law to exist separately and apart from its owners.
This means that a corporation:
A Is owned by only one person
B Is legally separate from its stockholders
C Must be privately held
D Cannot sell stock
B Is legally separate from its stockholders
What do we call the total shares of ownership in a corporation?
Capital Stock
The company issues 5,000 shares of 1 dollar par common stock for 8 dollars per share
Debit Cash 40,000
Credit Common Stock 5,000
Credit Paid in Capital in Excess of Par 35,000
Which group is elected by stockholders to set policies and hire officers?
Board of Directors
Which stock normally has voting rights?
Common Stock
The company issues 400 shares of 8 percent 100 dollar par preferred stock at 105 dollars per share
Debit Cash 42,000
Credit Preferred Stock 40,000
Credit Paid in Capital in Excess of Par 2,000
Name the legal document submitted to the state that lists basic characteristics of a corporation?
Articles of incorporation
The ability of a security to be traded for a specified number of shares of another security is
a. its conversion price
b. the registration statement
c. the conversion option
d. double taxation
c. the conversion option
A conversion option adds value to preferred stock and enables the corporation to issue the stock with a lower dividend rate.
Why does a conversion option benefit a corporation?
A It eliminates dividends
B It raises taxes
C It allows a lower dividend rate
D It removes voting rights
C It allows a lower dividend rate