Final Exam

Question 1

Seperate Legal Existence

Answer 1

an entity in the eyes of the law, separate and distinct from its owners

Question 2

Limited liability of stockholders

Answer 2

considered the biggest advantage of the corporate form of business, limited liability means that stockholders’ liability is limited to their investment in the company and that creditors can make no claim against personal assets

(exception for fraud)

Question 3

Transferable ownership rights

Answer 3

shares of company stock can be sold with no effect on the operating activities of the corporation

Question 4

Ability to acquire capital

Answer 4

corporations can raise capital by issuing stock

Question 5

Continuous life

Answer 5

typically, a corporation’s life is perpetual

(although its charter can
limit it to a set number of years)

Question 6

Corporation management

Answer 6

stockholders own the company and elect its board of
directors. The board develops operating policies and appoints officers to run the
corporation.

Question 7

Government regulations

Answer 7

corporations are subject to regulation at both the state and
federal levels

Question 8

Additional taxes

Answer 8

as a separate legal entity, a corporation pays both federal and state income taxes, which are usually substantial