Q39PGA_1 - Horngren'S Financial And Managerial Accounting

Question

Organizing a corporation and issuing stock

Montel and Jeremy are opening a paint store. There are no competing paint stores in the area. They must decide how to organize the business. They anticipate profits of $350,000 the first year, with the ability to sell franchises in the future. Although they have enough to start the business now as a partnership, cash flow will be an issue as they grow. They feel the corporate form of operation will be best for the long term. They seek your advice.

Requirements

1. What is the main advantage they gain by selecting a corporate form of business now?

Step-by-Step Solution

Answer

The transfer of ownership does not affect the continuity of the corporation.

Step 1: Basic Introduction

A corporation is a legal entry working to earn the profit. Company is the group of the people who operate and manage the operations of the company.

Step 2: The main advantage they gain

Perpetual succession is one of the major advantages of a corporation regarding its legal existence as separate from its owners or shareholders. This states that any change in ownership of a company does not influence the status of the company.