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BUS 251 Chapter 11 Notes

4 Pages

Business Administration
Course Code
BUS 251
Steve Gibson

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BUS 251 Chapter 11 Notes Shareholders equity Forms of organizationSole proprietorship singleowner business so that the owner make all the decisions and keep all the profits o There is no concern to report to the shareholders because they dont have any o For taxation purposes owners income is recorded as the profit of the company o There are only capitals equity in the equity sectionPartnership one or more people own the company and there is a partnership agreement that specifies who make the decisions in the company and how the assets and profits are distributed o Capital accounts are used to separate the profits or losses under the owners name o There is also a drawing account that shows how much money was withdrew from the business by each of the partnerCorporation there is a separation from the shareholders legally from the operations The board of directors are the people who are decision makers in the business Limited liabilities differences in the different form of organization o Sole proprietorship and partnerships have unlimited liability which means that the company assume all the risk if the business runs into trouble they can get all the debts they want o Corporate shareholders have limited liability which means they cant be made to pay for the companys debt they can never lose more than what they invested o Limited partnership have limited liability too General partners have unlimited liability and they make daytoday decisionsLimited partners have limited liability and they have limited involvement in the partnershipTaxation differences in different forms of organization o For partnership or sole proprietorship companies their taxes are included with their person tax o For corporate income taxes tax are doubled but doesnt mean that they have to pay moreo Tax are paid by the amount of income they earn and also the dividends they issuedTransfer of ownership is easier for corporation but there are cost to file corporate income tax returnsetc CorporationsA corporate company can get incorporated to protect the shareholders because they are not making the decisions for daytoday activitiesArticles of incorporations include all the information how the business will be run and who are people responsible for what kind of decisions SharesThe article of incorporation states the authorized shares the maximum number of shares that the company can issue Issued shares shares that the company has soldPar value the dollar amount that is attached to each shareLegal capital when shares are issued the total amount must be keep intact and it cannot be paid out as dividends to protect the creditors and prevent liquidating dividendProspectus the legal document thatshows the details and features of issued commonpreferred shares Common sharesCommon shares represent basic voting ownership rights of the companyBasic set of rights that allow the owner to share proportionatelyProfits and losses o Different classes of shares are entitled to different portions of the earnings o No restrictions on their rights to share in earningso The companys profits and losses are allocated to its shares measured by earnings per shares figureSelection of corporate management o The right to vote for the corporations board of directors one shareone vote o The board of directors represent shareholders and make decisions and pay dividends
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