Chapter 6 Common Stocks Common stock represents equity, or an ownership position in a corporation. It is a residual claim, in the sense that creditors and preferred stockholders must be paid as scheduled before common stockholders can receive any payments In bankruptcy, common stockholders are in principle entitled to any value remaining after all other claimants have been satified The great advantage of the corporate form of organization is the limited liability of its owners Common stocks are generally"full paid and nonassessable", meaning that common stockholders may lose their initial investment, but not more
Chapter 6 Common Stocks Common stock represents equity, or an ownership position in a corporation. It is a residual claim, in the sense that creditors and preferred stockholders must be paid as scheduled before common stockholders can receive any payments. In bankruptcy, common stockholders are in principle entitled to any value remaining after all other claimants have been satified. The great advantage of the corporate form of organization is the limited liability of its owners. Common stocks are generally “full paid and nonassessable” , meaning that common stockholders may lose their initial investment, but not more
Chapter 6 Common Stocks o The corporate form of business organization Sole proprietorship A sole proprietorship is a business owned by a single individual or one person. This is the simplest type of business to start and is the least regulated form of organization o The owner of a sole proprietorship keeps all the profits And the owner has unlimited liability for business debts e There is no distinction between personal and business income, so all business income is taxed as personal Income o The life of this firm is limited to the owner's life span
Chapter 6 Common Stocks The corporate form of business organization ⚫ Sole proprietorship ⚫ A sole proprietorship is a business owned by a single individual or one person. This is the simplest type of business to start and is the least regulated form of organization. ⚫ The owner of a sole proprietorship keeps all the profits. And the owner has unlimited liability for business debts. ⚫ There is no distinction between personal and business income, so all business income is taxed as personal income. ⚫ The life of this firm is limited to the owner’s life span
Chapter 6 Common Stocks e Partnership o A partnership is similar to a proprietorship except that are tow or more owners(partners). That means partnership is business formed by tow or more individuals or entities There have general partnership and limited partnership in a partnership firm o Some conclusions of the tow forms of corporation e Unlimited liability for business debts on the part of the owners, Limited life of the business Difficulty of transferring ownership. The ability of such business to grow can be seriously limited by an inability to raise cash for investment
Chapter 6 Common Stocks Partnership ⚫ A partnership is similar to a proprietorship ,except that are tow or more owners(partners). That means partnership is business formed by tow or more individuals or entities. ⚫ There have general partnership and limited partnership in a partnership firm. Some conclusions of the tow forms of corporation ⚫ Unlimited liability for business debts on the part of the owners, ⚫ Limited life of the business, ⚫ Difficulty of transferring ownership. The ability of such business to grow can be seriously limited by an inability to raise cash for investment
Chapter 6 Common Stocks e Corporation o The corporation is the most important form of business organization all over the world. That refer to a business created as a distinct legal entity composed for one or more individuals or entities o The relative ease of transferring ownership, the limited liability for business debts, and the unlimited life of the business are the reasons why the corporate form is superior when it comes to raising cash. e The disadvantage of corporation is, since a corporation is a legal"person,, it must pay taxes. Money paid out to stockholders in the form of dividends is taxed again as income to those stockholders. this is double taxation
Chapter 6 Common Stocks Corporation ⚫ The corporation is the most important form of business organization all over the world. That refer to a business created as a distinct legal entity composed for one or more individuals or entities. ⚫ The relative ease of transferring ownership, the limited liability for business debts, and the unlimited life of the business are the reasons why the corporate form is superior when it comes to raising cash. ⚫ The disadvantage of corporation is, since a corporation is a legal “person”, it must pay taxes. Money paid out to stockholders in the form of dividends is taxed again as income to those stockholders. this is double taxation
Chapter 6 Common Stocks o There is an S corporation is a special type of small corporation that is essentially taxed liked a partnership and thus avoids double taxation. In mid 1996. the maximum number of shareholders in an corporation was raised from 35 to 75 o A corporation by another name The corporation form of organization has many variations around the world. but the essential features of public ownership and limited liability remain. These firm are often called joint stock companies, public limited companied, or limited liability companies, depending on the specific nature of the firm and the country of origin
Chapter 6 Common Stocks ⚫ There is an S corporation is a special type of small corporation that is essentially taxed liked a partnership and thus avoids double taxation. In mid- 1996, the maximum number of shareholders in an S corporation was raised from 35 to 75. A corporation by another name The corporation form of organization has many variations around the world, but the essential features of public ownership and limited liability remain. These firm are often called joint stock companies, public limited companied, or limited liability companies,depending on the specific nature of the firm and the country of origin
Chapter 6 Common Stocks o The corporate form e Corporate charter A corporation exists only when it has been granted a charter, or certificate incorporation Charter is a document issued by a state to a corporation that specifies the rights and obligations of the corporation's stockholders. The charter is the most important constitution of a corporation It may be amended with the approval of the stockholders, perhaps by a majority or two-thirds vote, where each share of stock generally entitles its owner to one vote
Chapter 6 Common Stocks The corporate form ⚫ Corporate charter A corporation exists only when it has been granted a charter, or certificate incorporation. Charter is a document issued by a state to a corporation that specifies the rights and obligations of the corporation’s stockholders. The charter is the most important constitution of a corporation. It may be amended with the approval of the stockholders, perhaps by a majority or two—thirds vote, where each share of stock generally entitles its owner to one vote
Chapter 6 Common Stocks Both the initial terms of the charter and the terms of any amendment must also be approved by the state in which the corporation is chartered o Stock certificates e The ownership of a firm's stock has typically been represented by a single certificate, with the numbers of shares held by the particular investor noted on it o Shares of stock held by an investor may be transferred to a new owner with the assistance of either the issuing corporation or, more commonly its designated transfer agent
Chapter 6 Common Stocks Both the initial terms of the charter and the terms of any amendment must also be approved by the state in which the corporation is chartered. ⚫ Stock certificates ⚫ The ownership of a firm’s stock has typically been represented by a single certificate, with the numbers of shares held by the particular investor noted on it. ⚫ Shares of stock held by an investor may be transferred to a new owner with the assistance of either the issuing corporation or, more commonly its designated transfer agent
Chapter 6 Common Stocks Transfer agent is a designated agent of a corporation, usually a bank or other financial institution that administers the transfer of shares of a corporation's stock between old and new owners o votIng o Because an owner of a share of common stock is one of the owners of a corporation he or she is entitled to vote on matters brought up at the corporations annual meeting, and to vote for the corporation's directors. Any owner may attend and vote in person, but most choose instead to vote by proxy
Chapter 6 Common Stocks ⚫ Transfer agent is a designated agent of a corporation, usually a bank or other financial institution, that administers the transfer of shares of a corporation’s stock between old and new owners. ⚫ Voting ⚫ Because an owner of a share of common stock is one of the owners of a corporation, he or she is entitled to vote on matters brought up at the corporation’s annual meeting, and to vote for the corporation’s directors. Any owner may attend and vote in person, but most choose instead to vote by proxy
Chapter 6 Common Stocks Proxy fight ● Majority system ● Cumulative systen In the context of a corporation, a method of voting in which a stockholder is permitted to give any one candidate for the board of directors a maximum number of votes equal to the number of shares owned by that shareholder times the number of directors being elected n= 十 D+1
Chapter 6 Common Stocks ⚫ Proxy fight ⚫ Majority system ⚫ Cumulative system In the context of a corporation, a method of voting in which a stockholder is permitted to give any one candidate for the board of directors a maximum number of votes equal to the number of shares owned by that shareholder times the number of directors being elected. n=( )+1 ds D+1
Chapter 6 Common Stocks Where: n= minimum number of shares that must be owned d= number of directors the stockholder wants to be certain of electing s= number of shares outstanding D= number of directors to be elected In summary, the cumulative voting system gives minority stockholders the right to have some representation on the board of directors, provided that the number of shares owned is sufficiently large
Chapter 6 Common Stocks Where: n= minimum number of shares that must be owned; d= number of directors the stockholder wants to be certain of electing; s= number of shares outstanding D= number of directors to be elected In summary, the cumulative voting system gives minority stockholders the right to have some representation on the board of directors, provided that the number of shares owned is sufficiently large