Week Three Discussion Questions

1. Why does a company choose to form as a corporation? What are the steps required to become a corporation? What are the advantages and disadvantages of the corporate form of doing business? The main reason a company chooses to form as a corporation is to protect themselves from legal and financial liability. It separates the business from their personal assets. To become a corporation, the company must find an available name, appoint directors, file the articles of incorporation, and obtain required licenses. There are many advantages of the corporate form of doing business. Some advantages are protection from liabilities or lawsuits, it adds credibility having “inc” or “llc” at the end of the business name, the business continues on when the owners sells or dies, tax benefits, and others.
2. Why is preferred stock referred to as preferred? What are some of the features added to preferred stock that make it more attractive to investors? Would you select preferred stock or common stock as an investment? Why? Preferred stock is referred to as “preferred” because they have preference over common stock of the company assets if it liquidates. Preferred stock has a fixed rate and usually not expiration. The investor gets priority.
3. What are the different types of dividends corporations may issue? When should a corporation pay dividends? Do you prefer a stock dividend or a cash dividend? Why? - Corporations offer cash, property, scrip (a promissory note to pay cash), or stock. - It depends if it becomes a target of high acquisition. If you want to have less money on the books, pay out semi-annually to your benefit. Also it depends if there is a stock split or short-term/long-term investments. But if a company is unable to re-invest its cash at a higher rate than the shareholders or owners could if they had