Chapter 11 Terms

Stock dividends

Proportionate distribution of additional shares of declaring corporation's stock

Legal Capital

Amount of assets that should be maintained as protection for creditors; the number of shares multiplied by the par value

Stated Value

Arbitrary value assigned to stock by the board of directors, like par value, designates legal capital

Par value

Arbitrary value assigned to stock by the board of directors, like stated value, designates legal capital

Paid in capital in excess of par value

The account in which a company records any amount received above the par or stated value of stock when stock is issued

Treasury Stock

Stock previously issued to the public that the issuing corporation has bought back Contrast with outstanding stock

Ex-dividend

Stock traded after the date of record but before the payment date; does not receive the benefit of the upcoming dividends

Issued Stock

Stock a company has sold to the public

Payment Date

Date on which dividend is actually paid

Sole Proprietorships

Business (usually small) owned by one person

Partnerships

Business entity owned by at least two people who share talents, capital, and the risk of the business

Dividends in arrears

Cumulative dividends on preferred stock that were not paid in prior periods; must be paid before paying any dividends to holders of common stock

Transferability

Characteristic of corporations referring to the ease of exchanging ownership interests since ownership is divided into small, readily traded ownership units (share of stocks)

Preferred Stock

Class of stock, usually nonvoting, that has preferential claims (usually to dividends) over common tock

Limited Liability

Concept that investors in a corporation may not be held personally liable for the actions or debts of the corporation; stockholders' liability is limited to the amount they paid for their stock

Stock Split

Corporate action that proportionately reduces the par value and increases the number of outstanding shares; designed to reduce the market value of the split stock

Declaration Date

Date on which the board of directors declares a dividend

Date of Record

Date that establishes who will receive the dividend payment: shareholders who actually own the stock on the record date will receive the dividend even if they sell the stock before the dividend is paid

Withdrawals

Distributions of assets to the owners of proprietorships and partnerships

Stock Certificates

Document showing interest issued to an investor in exchange for contributing assets to a corporation; describes ownership rights and privileges

Securities Act of 1933 Securities Exchange Act of 1934

Federal Legislation passed after the stock market crash of 1929 to regulate the issuance and subsequent trading of public company stocks and bonds; created by the SEC

Sarbanes-Oxley Act of 2002

Federal legislation enacted to promote ethical corporate governance and fair financial reporting The act requires a company's CEO and CFO to certify in writing that the financial reports being issued present fairly the company's financial status. An executive who falsely certifies the company's financial reports is subject to significant fines and imprisonment, The act also establishes the Public Accounting Oversight Board (PCAOB), which has the primary responsibility for developing and enforcing auditing standards for CPAs who audit SEC companies. The Sarbanes-Oxley Act also prohibits auditors from providing most types of nonaudit services to companies that audit

Partnership agreement

Legal document that defines the rights and responsibilities of each partner and describes how income and losses are to be divided

Limited Liability Companies (LLCs)

Organizational form that offers many of the favorable characteristics and legal benefits of a corporation (such as limited liability and centralized management) but is permitted by federal law to be taxed as a partnership, thereby avoiding double taxation of profits

Stockholders

Owners of a corporation

Cumulative Dividends

Preferred dividends that accumulate from pear to pear until paid

Double Taxation

Recognition that corporate profits distributed to owners are taxed twice, once when the income is reported on the corporation's income tax return and again when the dividends are reported on the individual's return

Outstanding Stock

Shares of stock a corporation has issued that are still owned by outside parties, ie all stock that has been issued less any treasury stock the corporation has repurchased

Market Value

The price at which securities sell in the secondary market Also called fair market value