Identify Characteristics Of Corporations And Their Organizat

Identify Characteristics Of Corporations And Their Organization

Identify characteristics of corporations and their organization. Explain characteristics of, and distribute dividends between common and preferred stock. Explain the items reported in retained earnings.

The organization manages all the corporation's problems. The corporation is the primary company. Common stock represents ownership in a corporation with one class of stock. Preferred stock provides certain privileges over common stock, such as priority in dividends and assets but does not give control over the company. Retained earnings show the net income of the company that is not distributed to stockholders and are used for reinvestment or debt reduction.

Paper For Above instruction

Corporations are a fundamental form of business organization characterized by a distinct legal identity separate from their owners. This structure grants the corporation certain characteristics that influence how they operate, raise capital, and distribute profits. Understanding these characteristics is essential to comprehending the corporate world and its influence on the economy.

Characteristics of Corporations

One of the most defining features of a corporation is its legal personality. Once incorporated, a corporation is recognized by law as a separate entity that can own property, enter into contracts, sue and be sued, and undertake various business activities independently of its owners (Dlabay, Scott, & Crawford, 2018). This separation provides limited liability to shareholders, meaning their financial risks are limited to their investment in the stock of the corporation. Unlike sole proprietorships or partnerships, the corporation's owners—shareholders—are protected from personal liability for the company's debts and other obligations.

Another characteristic is the perpetual existence of corporations. Because they are separate legal entities, corporations continue to exist even if the ownership changes due to stock transfers, deaths, or other reasons. This continuity allows corporations to establish long-term plans and provide stability in their operations (Clarkson & Miller, 2019). Additionally, corporations are capable of raising substantial capital by issuing stocks and bonds, facilitating expansion and research initiatives that would be challenging for smaller business structures.

Corporations also have a complex organizational structure typically consisting of a board of directors, executive officers, and employees. The board of directors oversees the corporation’s strategic direction and appoints officers responsible for daily management. Shareholders exercise their control primarily through voting rights at annual meetings (Graham & Harvey, 2001). This governance structure ensures that the corporation's management aligns with the interests of shareholders and stakeholders.

Distribution of Dividends: Common and Preferred Stock

Dividends are distributed profits paid to shareholders, which are a critical aspect of shareholders’ returns. The distribution and rights associated with dividends vary between common and preferred stock. Common stockholders have voting rights and may receive dividends that fluctuate based on the company's profitability. These dividends are not guaranteed and are typically paid after preferred stockholders have received theirs (Brigham & Ehrhardt, 2016).

Preferred stockholders, on the other hand, enjoy priority over common shareholders concerning dividends and assets in case of liquidation. Typically, preferred stocks pay fixed dividends, making them a more stable income source for investors seeking steady cash flow (Ross, Westerfield, & Jordan, 2019). However, preferred stock generally does not carry voting rights, meaning preferred shareholders have limited influence over corporate policies compared to common shareholders.

The distinction between common and preferred stock affects how profits are shared within the company, impacting investors’ risk exposure and potential returns. Companies issue preferred stock to attract investors who seek predictable income, while common stock appeals to those interested in voting rights and potential for higher capital gains.

Items Reported in Retained Earnings

Retained earnings represent the accumulated net income of a corporation that has not been distributed to shareholders as dividends. This component of shareholders' equity appears on the company's balance sheet and reflects the reinvestment of profits into the business (Weygandt, Kimmel, & Kieso, 2020). The items reported in retained earnings include net income, dividends paid, and adjustments due to accounting changes or prior period corrections.

Each period’s net income increases retained earnings, providing a pool of funds that the company can use for various purposes such as research and development, repayment of debt, or acquisition of assets. Conversely, dividends paid decrease retained earnings, representing a distribution of profits to shareholders. Additionally, prior period adjustments or accounting policy changes can impact the retained earnings figure, reflecting corrections or revisions from previous periods (Kieso, Weygandt, & Warfield, 2019).

Retained earnings serve as an important indicator of a company's long-term profitability and financial stability. A consistent increase suggests effective management and growth, whereas declining retained earnings might indicate financial distress or aggressive dividend policies.

Conclusion

In conclusion, corporations are complex entities with distinctive legal and organizational characteristics that facilitate their growth and stability. The distribution of dividends between common and preferred stock reflects different investor priorities and risk profiles. Additionally, retained earnings are a vital component of corporate equity, representing accumulated profits available for reinvestment or other strategic uses. Understanding these elements provides a comprehensive view of corporate financial health and governance, essential for investors, managers, and policymakers alike.

References

• Brigham, E. F., & Ehrhardt, M. C. (2016). Financial Management: Theory & Practice. Cengage Learning.
• Clarkson, K. W., & Miller, R. L. (2019). Business Law: Text and Exercises. Cengage Learning.
• Dlabay, L., Scott, T., & Crawford, K. (2018). Principles of Business Law. McGraw-Hill Education.
• Graham, J. R., & Harvey, C. R. (2001). The Theory and Practice of Corporate Finance: Evidence from the Field. Journal of Financial Economics, 60(2-3), 187-243.
• Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate Accounting. Wiley.
• Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2019). Fundamentals of Corporate Finance. McGraw-Hill Education.
• Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2020). Financial Accounting. Wiley.