The firm has a legal existence that is separate from that of the owners. The owners are the firm s shareholders and they risk only the amount of money they put up to buy their shares. The owners elect a Board of Directors that appoints a manager to run the firm under the direction of the Board. They buy shares of stock in the corporation.
All profits belong to the shareholders.
Profits that are paid out to the shareholders are called dividends and profits that are reinvested in the firm are called retained earnings. Shareholders have limited liability for the debts of the corporation in the event of bankruptcy they are liable only for what they invested in the firm. Size of the firm is limited by the owner s capital Unlimited liability for debts Firm dies with the owner. Size of the firm is less limited with capital provided by more than one owner. Unlimited liability for debts Firm dies with the owners.