Ch11

Disadvantages of Corporate Form

- organization costs(higher cost for setting up the corporation) -taxation-- taxed twice -greater government regulation and supervision

Preferred Stock

-A special type of stock whose owners, though not generally having a say in running the company, have a claim to profits before other stockholders do. -entitled to a dividend before common stockholders

What is a corporation?

-a legal entity -the founders of a corporation prepare and file the articles of incorporation which define its structure, purpose and authorized stock -if approved by gov't, the founders next elect a board of directors and adopt the corporation by laws -in order to obtain the funds needed to begin operations, the corporation issues(sells) capital stock to stockholders(owners of corporation)

legal capital

-minimum amount of contributed capital that must remain in a corporation as a margin of protection of creditors - however, given the low par values typically assigned to a common stock today, this protection has limited usefulness for creditors.

Asset Distribution Preference (Preferred Stock)

-preference over common stockholders in corporate liquidations -in the event a corporation declares bankruptcy and liquidates, preferred stockholders have the right to receive a stated liquidation value per share before any amount is distributed to common shareholders

Advantages of Corporate Form

-separate legal entity which means it owns assets, incurs liabilities, and can sue/be sued -limited liability: owners personal assets are not at risk -transferability of ownership(easy to trade capital stock between investors) -continuity of existence -capital raising capability

No par value stock

-the issuance of capital stock without par value -the company's board of directors usually sets a stated value for the no par stock. -in many cases, the stated value will determine the corporation's legal capital. - for accounting purposes, stated value amounts are treated similarly to par value amounts -in absence of stated value, the entire proceeds from the issuance of no par value stock will likely establish a corporation's legal capital.

Each of the following is an advantage of the corporate form except: A) limited liability B) transferability of ownership C) taxation D) capital raising ability

C)taxation

Common Stock

Corporation's basic ownership share; also generically called capital stock. -has voting rights on corporate matters, shares in corporation's net income, preemptive right to purchase new shares to maintain proportionate ownership in the corporation with new shares, has residual claim on corporate assets in the event of liquidation

Which of the following applies to common stock relative to preferred stock? A) Voting Rights B) Shares in the corporation's net income C) Dividend Preference D) Both A(voting rights), and B(shares in the corporation's net income)

D) both A(voting rights), and B(shares in the corporation's net income)

What is in the corporate stakeholders?

Stockholders --> Board of Directors-> Chief Executive Officer, Chief Financial Officer, Vice President --> Employees

Par value

a specific face value for each share of capital stock -has no economic significance but may represent the minimum amount that must be contributed per share of stock -may also be used to define a corporation's legal capital -accountants carefully segregate and record the par value of stock transitions in an appropriate capital stock account

outstanding shares

issued shares that are still held by stockholders

issued shares

shares that have been sold to stockholders

authorized shares

the maximum number of shares of stock that can be sold

What are chief executive officer, chief financial officer (CFO), and vice president?

they are officers that implement operating policies and manage day to day operations

What are stockholders?

they are the owners of the corporation. those with voting shares elect the board of directors

What are board of directors?

they establish overall policies, declare dividends, and select corporate officers

what do the employees in a corporation do?

they execute management's operating plans and procedures

Capital Stock

total shares of ownership in a corporation

repurchased shares

treasury shares