Chapter 13, Problem 1Q

To determine

Corporation: A business entity which is liable for the actions and finances of the business, it is owned by shareholders but controlled by board of directors which are officially elected by shareholders it can be for a profit purpose or can be charitable

To explain: (a) Separate legal existence, (b) limited liability of stockholders and (c) transferable ownership rights.

Explanation of Solution

• Separate legal existence: A business which is detached from another business in terms of reporting. It comes into existence to separate the actions of business from other company.
• Limited liability of stockholders: Stockholders liability remains limited to the amount of their capital invested in business regardless of losses suffer by the business.
• Transferable ownership rights: Shares are owned by the shareholders they can sell them wholly are partially depending on their will, however the things changed in partnership firm as it required a common understanding of all or both the partners.

Notes:

• Under separate legal existence, a business is separated from another business (of which it was a part of) in terms of accountability. It creates its own business identity and can enter into contracts with that.
• Limited liability stockholders state that shareholders ownership is only limited to the amount they invested in business. Under this, creditors cannot claim the company’s assets.
• Shareholders holding shares in a company, give them right to sell them without anybody’s interference while this is only the case in individual business entity in case of partnership firm they can only be sold or purchased only after a mutual consent.

Conclusion

The above given characteristics have different but an important existence in partnership and individual business types.