Accounting 2 Chp 11 and Appendix C

Corporation’s Legal status

Entity with similar rights as individual

Corporation’s Ease of formation

Requires government approval

Corporation’s Government regulation

More severe than partnerships and proprietorships

Corporation’s Mutual agency

Stockholders cannot bind corporation to contracts

Corporation’s Owner authority and control

Shareholders elect board of directors

Corporation’s Owner liability

Not liable for corporation actions or debt

Corporation’s Tax status of income

Taxed a second time on owner's personal return

Corporation’s Transferability of ownership

Easily bought and sold

Why might an investor prefer preferred stock over common stock?

Preferred stock includes a preference for receiving dividends and assets in liquidation

Why might an investor prefer preferred stock if common stock is considered risky?

Because the investor believes the company’s common stock is too risky or has a lower expected return

Does preferred stock typically have voting rights?

No, preferred stock usually does not have voting rights.

Do investors in preferred stock receive guaranteed dividends even if directors don’t declare them?

No, dividends are not guaranteed unless declared by directors