Chapter 1

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 1
Review the characteristics of a company

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 ADVANTAGES
1.Corporations can raise
more money
2.Corporations have
continuous life
3.Ownership transfer is easy
4.Stockholders have limited
liability
DISADVANTAGES
1.Ownership and
management separated.
2.Double taxation
3.Government regulation is
expensive
4.Start-up costs are higher

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1. Private Company
A private company by its article (a) restricts the rights
transfer its shares,(b) limit the number of its members to
fifty, (c) prohibits invitation to public to subscribe for
shares or debentures.
2. Public Company
A public company is formed under the Companies Act,
2017. The minimum number of members may be seven
and maximum numbers of members may be up to the
number of shares issued.
3. Government Company
The government companies are formed and owned by the
federal and provincial governments. Such company may
registered as private or public company.
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4. Holding Company
A holding company can control the policies of other company
through ownership or control over board of directors. A big
company can buy more than fifty percent shares of other
company.
5. Subsidiary Company
A company is subsidiary company when big company owns
or hold more than fifty percent of shares or has power to elect
more than fifty percent of its directors.
6. Foreign Company
A foreign company is formed and registered outside the
country in home country. A branch office may be opened in
our country.
7. Pakistani Company
A company formed and registered in Pakistan
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8. Limited by shares
A public company may be registered with limited liability. The
amount invested in shares by the shareholder can be used to
pay business debts.
9. Unlimited Company
A company which do not have any limit on the liability of
members. Every member is liable to the full extent of its
personal assets for all the debts of the company.
10.Chartered Company
A company formed under special charter
11.Statutory Company
A company formed by the act of parliament

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 Formation of Company

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Due to the recent beef recalls, Southern Steakhouse is considering
incorporating. Bill, the owner, wants to protect his personal assets in
the event the restaurant is sued.

Which advantage of incorporating is most

applicable?

Stockholders have limited liability.

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 2
Describe the two sources of stockholders’
equity and the classes of stock

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Paid-in capital
Amounts received from
stockholders
Common stock is main
source
Externally generated
Resulting from
transactions with outsiders
Retained earnings
Earned by profitable
operations
Internally generated
Results from internal
corporate decisions to
retain net income for use
in the company

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Common stock Preferred stock
Four basic rights Certain advantages over
Vote—voting on common stock
corporate matters Receive dividends
Dividends—receive a before common
proportionate part of Fixed dividend amount
dividend declared Upon liquidation,
Liquidation—receive a receive assets before
proportionate part of common
assets remaining
Preemption—maintain
their proportionate
ownership
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