Global Journal of Management and Business Research, D: Accounting and Auditing, Volume 22 Issue 2

(e.g., beneficiaries) of nonprofit corporations have no incidents of ownership. These firms serve as benchmarks for the claims of shareholders to the corporation’s assets. Table 2: Summary of Findings Liquidity Protection is Not Present Liquidity Protection is Present Incidents of Ownership** Sole Proprietor General Partner Sole Shareholder Controlling Shareholder* Non-Controlling Shareholder* Nonprofit Member Right to possess Present Present Absent Absent Absent Absent Right to use Present Present Absent Absent Absent Absent Right to income Present Present Residuary Residuary Absent Absent Right to capital Present Present Present Residuary Absent Absent Right to manage Present Present Residuary Residuary Absent Absent Duty to prohibit harmful use Present Present Absent Absent Absent Absent Liability of execution Present Present Absent Absent Absent Absent * Compared to the sole shareholder, these residuary rights are diminished by cumulative voting and fiduciary responsibilities to minority shareholders. ** There are 7 incidents of ownership because 3 were eliminated from the analysis and the right of residuary relates to all other incidents. Thus, the main result of the analyses is that, like firm-members of nonprofit corporations, the non- controlling shareholders have no incidents of ownership. They have no right to any of the corporate income or assets, and arguably less power than other firm- members (e.g., managers, employees) to obtain them. In no meaningful sense do these non-controlling shareholders possess ownership claims to the corporation’s assets. Regarding the Alternative Hypothesis, the evidence supports the hypothesis that firm-members of firm-types with liquidity protection have less legal ownership claims to firm-assets than do firm-members of firm-types without liquidity protection. 42 V. I mplications for A ccounting Specifically, the firm-members of those firm-types without liquidity protection (i.e., sole proprietorships and partnerships) have greater ownership claims to firm-assets than do firm-members of firm-types with liquidity protection (i.e., business corporations and nonprofit corporations).No statistical test is necessary because all firm-types legally must have identical incidents of ownership to the firm- assets. In a sole proprietorship, the equality, assets equal liabilities plus net worth, ignoring measurement concerns, makes eminent economic sense. Calling the sole proprietor’s net worth, “Owner’s Equity” in order to imply that s/he has legal claim to the firm’s net assets does not appear unreasonable. A balance sheet with a 42 Obviously, everything could be restated using a null, rather than an alternative, hypothesis, but the result would be clumsy wording with no substantively different conclusion. “proprietary perspective” presents the firm’s net assets, particularly the profits, as claimed by one type of firm- member. Calling the net assets, “Owner’s Equity” shows that the sole proprietor has legal claims to the net assets. Applying this “proprietary perspective,” to large, widely held corporations, Sprague (1908) called net assets, “net worth,” while Hatfield (1909) called net assets, “proprietorship.” Couchman (1921) asserted that the “rights of persons to these assets” include “the rights of creditors, known as liabilities, and the rights of proprietors,” the shareholders of corporations. In arguing that the proprietary perspective applies to the business corporation, Couchman (1921, 265)asserts that, …surplusforms a part of the proprietorship, [as] it was either contributed to the organization by the proprietors themselves or has accrued to their credit within the organization...As to the surplus arising from earnings…[s]ome organization in their annual balance- sheets use the term “undivided profits” to display that portion of the net earnings of the preceding period which has not been appropriated, transferring the undivided profits of other periods to the surplus account. Portions of earned surplus may be set a side under many distinctive headings to sow the purposes for which hey are appropriated, such as “reserve for sinking fund,” “reserve for betterments,” “reserve for new factory…It is also desirable that in the balance-sheet the accountant should display surplus in such manner that the amount available for dividends may be readily ascertainable . 43 43 Couchman (1921, 265) uses the term “surplus” “in its widest sense, that is, to measure any excess of asset value which a corporation may have over the sum of its liabilities and outstanding capital stock.” The Effects of Entity Shielding on Claims to Assets: Implications for Financial Reporting 30 Global Journal of Management and Business Research Volume XXII Issue II Version I Year 2022 ( )D © 2022 Global Journals