Chapter 27. SHAREHOLDERS' EQUITY
Martin Benis, PhD, CPA
The Stan Ross Department of Accountancy Zicklin School of Business, Bernard M. Baruch Collgeg, CUNY
This chapter was updated form the Ninth Edition by the ditiors.
THE CORPORATION
(a) DEFINITION.
A corporation is a statutory form of organization created under rules promulgated by the legislature of the state in which it is incorporated. It is "an artificial being, invisible, intangible, and existing only in contemplation of law. Being the mere creature of law, it possesses only those properties which the charter of its creation confers upon it."[383] Thus, a corporation is a distinct and unique entity, separate from the personal affairs and other interests of its owners.
(b) ADVANTAGES OF CORPORATE FORM.
The important advantages of doing business as a corporation are the following:
Continuity of life
Limited liability for owners
Ease of transferability of ownership
The combination of these three advantages provides the corporation with the ability to raise large sums of capital. It is the sources of this capital and the claims on it that are of concern to the accountant.
(c) OWNERS' INTERESTS.
Since the corporation is separate and distinct from its owners, owners merely have claims against its net assets. These claims and their nature and origin are presented in the shareholders' equity section of the corporate balance sheet. Shareholders' equity generally comprises three broad categories:
Capital stock or legal capital
Additional paid-in ...
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