2RQ - Horngren'S Financial And Managerial Accounting

Question

List three characteristics of a corporation.

Step-by-Step Solution

Answer

The three characteristics of a corporation that can be listed are:

a. Separate Legal Entity

b. Limited Liability

c. Indefinite Life

Step 1: Introduction to Corporation.

Corporations come in various types but are normally divided by the law of the jurisdiction where they are chartered based on two aspects: 

Whether the corporation can issue stock, or 

Whether the corporate is formed to make a profit.

Step 2: Characteristics of a Corporation:

1. Separate legal entity: A corporation is organized independently of its owners as a separate legal entity. 
2. Liability: No personal liability of the owner(s) for corporate debts is to be considered. Stockholders have not personally obligated the repayment of debts of the corporation.
3. Indefinite life: Corporations have eternal life. They can exist until the corporate chooses to terminate. The withdrawal or death of an owner does not cause the end of the corporate.