Corporporation Types

A C Corporation gives control of management to the investors, which is good since the people who are investing their money have a large amount of control. One disadvantage is the large rate at which C Corporations are taxed, even including dividends and investor's individual shares. This also entails double taxation, or additional taxes for management and investors.

In an S Corporation, the shares are sold for capital, and the reward for the shareholders is that their shares are not directly taxed. Also, a person's ownership of stock can extend even past death, which is good since it can be passed to children and ensures its longevity in the hands of investors. Disadvantages include that the company can not sell their stocks to any person/corporation, thus must conforming to IRS regulations.

An LLC lets members essentially set up the style of management they deem best, which gives them primary control over management. Also, there is no tax on shares since income is simply passed within the company. Disadvantages include laws restricting some forms of capital raising, like the selling of all interests, and in certain states, shares may not be perpetual under state law.

Enron and Arther Anderson

In 2001, Enron was a leading Fortune 500 Company that sold energy and commodities. The company was worth over 100 billion dollars, and seemed to be just another giant and steady corporation. In late 2001 though, Enron filed for bankruptcy, shocking its investors and America. A trial was conducted to search for how this multi-billion dollar company with no signs of failure, could suddenly have lost the entirety of its capital. This is how the investigation into Arther Andersen began. Arther Andersen was a longstanding financial firm, considered to be one of the five biggest in the country, that had recorded the entirety of Enron's transactions. What essentially occured was a mass forgery of accounting documents, where Arther Andersen would falsify their balance.

As an example, the firm of Arther Andersen would overstate the actual assets that the company owned, and thus overstating the company's capital. For Enron, this was undoubtedly attractive since the more capital the company seemed to be bringing in, the more investors it would get. The case of Enron shows how influential accounting is, and more so how powerful it is. Arther Andersen's role in carrying out the falsification of accounting records sheds light on how errors in accounting, whether purposely or not, affect the entire way our economy functions.

http://www.nysscpa.org/cpajournal/2006/1106/infocus/p14.htm
http://www.time.com/time/business/article/0,8599,193520,00.html

Disclaimer

I am Adam Ziv-el, a student at Nicolet High School. This blog is not intended to be taken as proffesional, but rather as a student learning about Accounting, so my posts may not be completely accurate.