Accounting 2 Dersi 6. Ünite Sorularla Öğrenelim

What are different forms of entities?

Different forms of entities can be classified as sole proprietorships, partnerships, and corporations.

What are the characteristics of proprietorship?

The expiration of a proprietorship is caused either by the proprietor’s death or his/her choice of ending it. Also, the proprietor is personally liable for the proprietorship’s liabilities. However, the accounting process of the proprietorship is separate from the personal records of the proprietor. Another important characteristic is about taxation. A proprietorship is not a separate taxable entity. The proprietor pays tax on the income of proprietorship.

What are the characteristics of partnership?

Similar to proprietorship, the cancellation of the partnership may be caused either by one of the partners’ death or choice of cancelling it and the partners are personally liable for the partnership’s liabilities. Surely, based on the entity concept the accounting process of a partnership is separate from the personal records of the partners. Partnerships are not separate taxable entities.

What is different about Limited Liability Partnerships?

In a Limited Liability Partnerships, all of the members have limited liability. Thus, a Limited Liability Partnership can protect other members from negative possibilities like unethical behaviors that result from some members.

What is the definition of a corporation?

A corporation is a legal entity which is organized under state law and owned by shareholders. Thus, the owners in a corporation are called shareholders. A person or an organization may own some certificate that represents the ownership in a corporation named shares of a corporation and called shareholders. Generally, corporations are organized as very large entities and sometimes their shares can be purchased on an organized stock exchange market. These are called publicly held corporations. In this
case, a corporation may have many shareholders.

What are the characteristics of shareholders?

As an important characteristic, shareholders are not personally responsible for the corporation’s liabilities. This means that shareholders’ possible loss is limited with their capital investment. Hence, the creditors cannot make any claim on shareholders’ personal assets. This characteristic of corporation is essential for the shareholders because their personal assets are protected and the corporation may raise may raise more capital from shareholders. Also, the government and related regulators design more regulations and try to monitor corporations to protect shareholders’ and creditors’ claims. Another characteristic is the transferability of the shares. This characteristic is
essential for shareholders since it is flexible. They can transfer corporation’s shares to another one.

What are the characteristics of corporations?

The cancellation of the corporation does not depend on the death of any shareholder or their choices to cancel it. In other words, the corporation is a permanent organization. The transfer of the shares, anyone’s death or withdrawal do not put an end to the corporation. Another distinguishing difference of a corporation is about taxation. Corporations are taxable entities. All of the corporations have to pay tax. Besides, when corporations make cash payments to the shareholders, double taxation may occur. The imposed taxation is paid by the corporation and the cash received by the shareholders is reported on the income tax return of the shareholder. This subject is called cash dividend. This term “Cash dividend” is an individual share of the income distributed to the shareholders. Contrary to the other types of entities, a corporation is a legal entity separate from its owners. 

What are the advantages of corporations?

Advantages
• Corporations are separate legal entities. They are organized independently of their
shareholders.
• Shareholders have limited liability in corporations.
• Corporations have continuous lives.
• Transferability of ownership is easy in corporations in comparison to other types of entities.
• Raising more capital can be easy in corporations in comparison to other types of entities.

What are the disadvantages of corporations?

Disadvantages

• There are greater regulations for corporations in comparison to other types of entities.
• Corporations may besubject to doubletaxation.
• Because of some legal procedures, the start-up costs may be higher in the corporations comparing to the other types of entities.

What are the shareholders' rights in corporations?

• Vote: Coequal shareholders legally own the corporation. They can manage the corporation indirectly through a board of directors they elect. Shareholders vote on some matters at shareholders’ meetings. In normal conditions, each share carries one vote.
• Dividends: When declared, shareholders receive a proportionate of some dividend. Generally, each share receives an equal amount of dividend.
• Liquidation: When a corporation goes out, shareholders may receive their proportionate share of any asset that still remains.
• Preemption: Shareholders have the right to maintain their proportionate ownership in corporations.

• Receiving Information: Shareholders havethe right to access information related to the corporation.

What is authorized share, issued share and outstanding share?

Authorized share is the share number in total that a corporation that a corporation is authorized to sell as indicated in its charter. Issued share is the share that has been issued by the corporation. Outstanding shares are the shares that have already been issued and held by shareholders.

What is common share and preferred share?

Common share is a share that represents the ownership of a corporation. Preferred share is a special share that provides its owner some advantages more than a common share does.

What is par value?

“Par value” is the nominal value assigned by a corporation to its shares in the charter. It is different than the market value of shares. Most corporations prefer to set par value low enough to protect their corporation to issue shares below par value.

What is par value share?

Par value share is the capital share that has a par value.

What is no-par value share?

No-par value share is the capital share that has no par value assigned to it.

What is stated value share?

Stated value share is a share that assigned to an amount similar to par value.

What is capital share?

Capital share means the transferable units that represent the ownership of a corporation.

What are the basic groups of shares according to the shares’ accounting process?

As a general classification according to the shares’ accounting process, the classes of shares may be divided into two basic groups:
Common share - Preferred Share
Par Value Share - No-par Value Share-Stated Value Share

What is a share certificate?

A share certificate is an evidence that represents the ownership of a corporation.