Question

List two corporate characteristics considered to be advantages of a corporation and list two corporate characteristics considered to be disadvantages of a corporation

Answer 1

As per HOMEWORKLIB POLICY and guideline, the 1^st four questions are answered below:

Q1)

Advantages:

No.1) Separate legal entity: a corporation has separate legal entity in a sense that it can do business by its own name. This makes a separation from owners, directors, employees, etc. This thing not happens in the other form of business (sole-proprietorship or partnership), since there owners are not separated from their business.

No.2) Limited liability: the owners (shareholders) of a corporation are liable up to their investments in shares; they don’t have any personal liability apart from such investments. This is not happening in other form of business – if required their personal property could be taken by the court.

Disadvantages:

No.1) Legal formalities: There are so many legal formalities in case of formation of a corporation and its running – such as registration process, stock exchange enlistment, periodic board meeting, and financial statements.

No.2) Taxation: corporations pay taxes on their incomes and again shareholders pay taxes on their dividends; therefore, there is double taxation.

Q2)

Par value (face value) of shares issued by a corporation is legal capital; the aggregate of such amount can’t be distributed in any means and must be kept as it is in the books of accounts till maturity.

This is required for the purpose of creating reserve – if there is any default or the corporation goes into liquidation, creditors would be paid out of this reserve.

Q3)

This is required for proper balancing of ownerships.

Common stockholders have voting rights while preferred stockholders don’t have such rights.

Preferred stockholders have preference on receiving dividends while common stockholders don’t have such preference.

Q4)

The rate of dividend is 8%.

Dividend per share = Par value × Rate of dividend

                                = 100 × 8%

                                = 8 (Answer)