Chapter 11 - Shareholders' Equity (Financial Accounting)

minority interest (or non-controlling interest)

a block of shares owes by an investor that represents less than 50% of the outstanding shares

multiple voting shares

a class of common shares granting special voting rights so that the holder is entitled to more than one vote for each of the common shares owned

Accumulated other comprehensive income (AOCI)

a component of shareholders equity representing the cumulative amount of unrealized increases and decreases in the values of an entity's net assets

stock dividends

a distribution of additional common shares to shareholders. Existing shareholders receive shares in proportion to the number of shares they already own

stock split

a distribution of new shares to shareholders. the new shares take the place of existing shares, and existing shareholders receive new shares in proportion to the number of old shares they already own

special dividend (or one-time divided)

a dividend declared and paid by a company periodically without any regularity.

prospectus

a document filed with a securities commission by a corporation when it wants to issue public debt or shares to the public

articles of incorporation

a document filed with the federal or provincial regulatory authorities when a business incorporates under that jurisdiction. The articles include, among other items, the authorized number of shares and dividend preferences for each class of shares that is to be issues

reverse stock splits (or consolidations)

a stock split that decreases the number of outstanding shares and has the effect of increasing share prices. Reverse stock splits are done based on a specified ratio, such as one-for-two or one-for-five.

floating rate

amount of dividend paid on preferred shares that changed as interest rates change

memorandum entry

an entry made to record a stock split. No general ledger accounts are affected; only the record of the number of shares issues is affected

Preferred shares (or preference shares)

an ownership right in which the shareholder has some preference over common share-holders as to dividends; that is, if dividends are declared, the preferred shareholders receive them first. Other rights that are normally held by common shareholders may also e changed in preferred shares; for example, most preferred shares are non-voting

Common shares (or ordinary shares)

certificates that represent portions of ownership in a corporation. these shares usually carry a right to vote

other comprehensive income

changes in net asset values representing unrealizable gains and losses, which are not included in net earnings but are included comprehensive income

dividends in arrears

dividends on cumulative preferred shares that have no yet been declared from a prior year

Do companies have to pay dividends?

no

cumulative preferred shares

preferred shares that accumulate dividends in periods even if there are no dividends declared. These accumulated undeclared dividends, called dividends in arrears, must paid before a divided can be declared for common shareholders

convertible preferred shares

preferred shares that are exchangeable or convertible into a specified number of common shares

redeemable preferred shares

preferred shares with a feature that gives the issuer the right to repurchase (or redeem) them from shareholders at specified future dates and amounts

participating preferred shares

preferred shares with a feature that increases the dividend rate on the shares so that it results in dividends equivalent to those being paid to common shareholders

What is included in the shareholders' equity section of the statement of financial position?

share capital and retained earnings -(other accounts as well can appear, such as accumulated other comprehensive income and contributed surplus)

retractable preferred shares

shares that can be sold back (retired) to the company at the shareholder's option. The price that must be paid for them and the periods of time within they can be sold are specified in the articles of incorporation

fixed dividend rate (or states divided rate)

stated amount of dividends paid of preferred shares, states as either a dollar amount per share (a quarterly or annual dividend rate per share per year) or as a percentage of the share's issue price

contributed surplus

the account that records a surplus arising from certain transactions with shareholders involving the sale or repurchase of a company's shares or the issuance of stock options and that do not fit the definitions of share capital or retained earnings

legal capital

the amount that is recorded in the common share account when the shares are first issued

date of payment

the date on which a dividend is paid to shareholders

date of record

the date on which a shareholder must own the shares in order to receive the dividend from a share

ex-dividend date

the date on which shares are sold in the market without the most recently declared dividend

date of declaration

the date on which the board of directors votes to declare a dividend. on this date, the divided becomes legally payable to shareholders and a liability to the company

initial public offering (IPO)

the initial offering of a corporations shares to the public

authorized shares

the maximum number of shares that a company is authorized to issue under its articles of incorporation

outstanding shares

the number of shares that are held by individuals or entities outside the corporation (excludes treasury shares)

pre-emptive right (or anti-dilution provision)

the right of shareholders to share proportionately in new issuances of shares so that their ownership interest will not be diluted by future share issuances.

issued shares

the shares of a corporation that have been issued

cash dividends

(dividends are normally cash dividends) - the shareholder receives a cash payment from the company

Dividend Declaration process (and the 4 key dates)

-An action by a corporations board of directions that legally obliges the corporation to pay a dividend 1. the date of declaration 2. the ex-dividend date 3. the date of record 4. the date of payment

rate reset & reset date

-rate reset: characteristic of preferred shares by which they pay a fixed dividend from their issuance until a pre-established reset date when a new fixed rate will be established -reset date: date on which the fixed dividend paid on the rate reset preferred shares is set at a new fixed rate reflecting the economic conditions and borrowing rates at that time

Major Differences between common and preferred shares (3)

1. Receive dividends? -Common shares: only when declared by the board and only after any preferred dividends have been paid off. No limit on how many dividends they can receive -Preferred shares: Only when declared by the board and the amount of divided is usually fixed 2. Right to vote for the board of director? -common shares: yes, at least one class must vote -preferred shares: no, usually non-voting 3. Priority on liquidation? -Common shares: last after credits and all preferred shareholders are satisfied -Preferred shareholders: after credits, but before common shareholders

Common shareholders rights (2)

1. right to purchase subsequent issues of shares (pre-emptive right) 2. special voting rights (multiple voting shares)

Why would a company repurchase its own shares?

A company might do this when it has cash that is surplus to its needs. Repurchasing shares reduces the number of shares outstanding and fewer shares outstanding results in an increase in the company's earnings per share, which may, in turn, increase the share price.

annual meeting

meeting of shareholders required to be held every year by public companies during which shareholders elect the corporation's board of directions, among other things