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corporation
artificial being created in accordance with state laws; owners are separate and distinct from the corp itself; stockholders have limited liability; corp is subject to double taxations
Articles of Incorporation
the application they must file to be one; states the purpose of the corp, the type, number of shares, the process of electing board of directors
Corporate Charter
the agreement between the corporatation and the state
Stockholders’ Equity consists..
capital stock, APIC, treasury stock, retained earnings
Capital Stock
paid-in capital; common & preferred stock
APIC
additional paid in capital; additional money created when stock is sold to the public
sales price of stock
net value of stock
preferred stock
no voting rights; dividends received first before common stock; dividends fixed in amount
par value of the stock
the original value of the stock certificate or bond
What are the two benefits for preferred stock?
That they have a fixed amount and that they are received before common stock
PS APIC
the difference betwee market price of the stock issued and the par value (market-par)
common stock
voting rights, dividends received after preferred stock, dividends vary in amount
What is the benefit of common stock?
They have voting rights, meaning that they get to have a say on some of the operations in the company
CS APIC
the difference between market price and par value (market-par)
Treasury Stock
shares that the company bought back
Why do businesses buy back treasury stock?
to reduce dividend payments, to increase company EPS (earning per share), used in mergers (Think T-Mobile x Sprint, Merill X Bank of America, AT&T x Time Warner)
Fair Market Value
The price of the bond / stock determined by the marketplace (objective purchasers)
Limited Liability
owners of the corporation only lose their investments into the company; can’t lose personal assets
Double taxation
corporations are taxed both by the IRS directly and through the stockholders
Rights that common stockholders have
voting rights, share of profits, liquidation rights, inspecting financial statements
Dividends in arrears
outstanding dividends owed to preferred stockholders; calculated in cumulative stock
Note
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