Chapter 35 Ownership Of A Corporation Ashcroft Law for Business

Preferred Stock May Be:

1. Preferred as to assets 2. Preferred as to dividends 3. Participating 4. Nonparticipating

Transfer of Stock

A stock certificate indicates the manner in which the stock may be transferred to another party. The owner may use a blank form on the back to make the transfer. Signature of the previous owner gives the new holder full possession and the right to exchange it for another made out by the corporation to the new owner. Whenever stock is transferred the new owner should exchange the certificate for a new one showing the correct name so that the corporation's books will show the correct stockholders name. Stockholders who are not registered do not have rights and privileges of stockholders and will not receive any profits of the corporation. If a broker holds the stock, and certificates have not been issued, they may transfer the stock at the written direction of the owner.

Stock Certificate

Amount of ownership (number of shares) may, but not need be evidence by a stock certificate. The certificate is not actual stock but written evidence of ownership of stock. A certificate shows the number of shares represented, face value of each share if any, and the signatures of the officers. The person named on the certificate, by issuance or endorsement, and has possession is prima facie evidence that the person is the owner. If ownership is not evidence by certificate, ownership is shown on the corporation's corporate record book.

Participating

Are entitled to share equally with common shareholders in any further distribution of dividends made after common shareholders have received dividends equal to those that the preferred shareholders have received by virtue of their stated preference. If preferred stock is to participate this right must be expressly stated on the stock certificate and in the articles of incorporation.

Capital Stock

Declared money value of outstanding stock. The amount of capital stock authorized in the charter cannot be altered without consent of the state and the majority of stockholders.

Prospectus

Document giving specified information about a corporation.

Ownership

Person achieves ownership in a stock corporation by acquiring title to one or more shares of stock. Owners are stockholders/shareholders. May obtain shares of stock by subscription either before or after organization of the corporation, or in other ways such as by gift or purchase from another shareholder.

Stockholders/Shareholders

Person who owns stock.

Cumulative preferred stock

Preferred stock on which all dividends must be paid before the common stock receives any dividend. These dividends must be paid for years in which the corporation did not earn adequate profit to pay the stated dividend.

Noncumulative preferred stock

Preferred stock on which dividends have to be paid only for the current year before common stock dividends are paid.

Preferred as to dividends

Preferred stockholders receive a dividend before any common stockholder.

Preferred as to assets

Preferred stockholders receive their proportionate share of a corporation's assets prior to any share going to a common shareholder.

Dividends

Profits of a corporation allocated to stockholders. May be paid in cash, stock, or other property. Cash dividends can be paid out of retained earnings with two exceptions. Paid out of donated or paid-in surplus, or paid out of capital for corporations with depleting assets. Stock dividends may be in the corporations own stock or in stock in another company. When in the corporations own stock, they are usually declared out of retained earnings but cannot be paid out of other surplus accounts. A stock dividend of the corporation's own stock cannot be declared if it has no surplus of any kind. Dividends may also be paid in the form of property that the corporation manufactures. Declaration of a dividend either common or preferred depends entirely on the discretion of directors. Once the directors declare a cash dividend, it cannot be rescinded. Stock dividends may be rescinded at any time prior to issuance and delivery of the stock.

Securities Investor Protection Act of 1970

Requires that all registered brokers and dealers and the members of a national securities exchange contribute a portion of their gross revenue from the securities business to a fund regulated by the SIPC.

Stock Option

Right to purchase shares from a corporation at a set price. The contract gives the individual the option for a stated period of time to purchase a number of shares at a given price. Corporations may give officials an option to purchase a number of shares in lieu of a salary increase.

Blue-Sky Laws

State laws to prevent sale of worthless stock. They apply to only intrastate transactions.

Nonparticipating

Stock on which the maximum divided is the percentage stated on the stock. The law presumes the stock is nonparticipating in the absence of a provision in the articles of incorporation.

Watered stock

Stock paid for with property of inflated value. May be prohibited outright. Cannot be used to defraud creditors. In the event of insolvency, creditors may sue the original recipients for the difference between par value and actual purchase price.

Treasury stock

Stock reacquired by a corporation. May be reacquired by gift. The directors fix the price at which it may be sold, nee not be at par value. Until it is resold, no dividends can be paid on it, nor can it be voted.

No-Par-Value stock

Stock to which no face value has been assigned. Some states do set a minimum price.

Par-Value stock

Stock with assigned face value. The law requires when par-value stock is issued in return for payment in money, property, or services, the stock must be equal in value to the money, property, or services. This relates to the price at which the corporation may issue the stock to an original subscriber.

Preferred Stock

The holder has special advantage or preference. In return for preference the stockholder usually give up two rights: 1. Right to vote in stockholders meetings. 2. Right to participate in profits beyond the percentage fixed in the stock certificate. Preference may pertain to division of dividends, division of assets on dissolution or both. The stock certificate indicates the type of preference, certificate of incorporation governs the exact rights of preferred shareholders.

Securities Exchange Act of 1934

The registration of stock exchanges, brokers, and dealers of securities traded in interstate commerce and SEC-regulated, publicly held corporations. Regulated corporations make periodic disclosure statements regarding corporate organization and financial structure. Requires certain disclosures of trading insiders-officers, directors, and owners of more than 10 percent of any class of securities of the corporation.

Common Stock

The simplest form of stock and the normal type issued. The owners control the corporation because they may vote for members of the board of directors. The board hires individuals who manage and operate the corporation. Unless a stockholder is a director or an officer they have no voice in the running of the corporation beyond the annual vote for the board of directors. They have the right to a share of the assets upon dissolution.

Securities Act of 1933

To regulate the sale of securities in interstate commerce. Anyone offering a new issue of securities for sale to the public must register it with the SEC and issue a prospectus.

Share

Unit of stock.