FINE 2000 Lecture Notes - Lecture 6: Double Taxation, Corporate Finance, Legal Personality
Document Summary
Ownership (represented by shares of stock) can be readily transferred, and the life of the corporation is therefore not limited. The corporation borrows money in its own name. As a result, the stockholders in a corporation have limited liability for corporate debts. The most they can lose is what they have invested. The relative ease of transferring ownership, the limited liability for business debts, and the unlimited life of the business are why the corporate form is superior for raising cash. If a corporation needs new equity, for example, it can sell new shares of stock and attract new investors: the corporate form has a significant disadvantage: Because a corporation is a legal person, it must pay taxes: money paid out to stockholders in the form of dividends is taxed again as income to those stockholders.