Focus on the structure and reporting of corporations.
Importance of understanding different types of stocks, shareholder rights, and corporate governance.
Corporation: A legal entity that is separate from its owners.
Separate Legal Entity: Corporations can own property, enter contracts, and sue or be sued independently of owners.
Limited Liability of Stockholders: Stockholders are not personally liable for corporate debts.
Transferable Ownership Rights: Shares of stock can be easily transferred.
Continuous Life: Corporations can continue to exist regardless of changes in ownership.
No Mutual Agency: Stockholders cannot bind the corporation without proper authority.
Ease of Capital Generation: Ability to attract investment through stock sales.
Government Regulation: Corporations face extensive regulations and scrutiny.
Double Taxation: Corporate earnings are taxed at the corporate level and again at the shareholder level when dividends are paid.
Charter Requirement: To create a corporation, a charter must be obtained from the state.
Governance: Stockholders elect a Board of Directors to oversee activities and management.
Control: To control a corporation, ownership of more than 50% of shares is necessary.
Rights associated with Common Stock:
Vote: Stockholders can vote on corporate matters.
Sell Stock: Freedom to sell their shares at any time.
Preemptive Right: Right to purchase additional shares to maintain ownership percentage.
Receive Dividends: Entitled to any profits distributed as dividends.
Share Assets in Liquidation: Right to remaining assets after creditors and preferred stockholders are paid.
Authorized Shares: The number of shares the charter allows the corporation to sell.
Issued Shares: The total number of shares that have been sold in the past.
Outstanding Shares: The number of shares that are still held by stockholders after sales and buybacks.
Market Value: The price at which shares are bought and sold, fluctuating daily.
Types include Common, Common A, Common B, and Preferred Stock.
Par Value: Minimum legal capital, usually a nominal amount assigned by the charter.
No Par Stock: No par is assigned, often prevailing in modern corporate structures.
Stated Value: A nominal value assigned to no-par stock.
Components include:
Common Stock
Paid in Capital in Excess of Par
Retained Earnings
Date of Declaration: The date the board decides to pay a dividend (liability date).
Date of Record: Stockholders owning shares on this date receive the dividend.
Date of Payment: The date the cash dividend is distributed.
Special Rights: Preferred stockholders have priority in dividends and asset distribution during liquidation.
No Voting Rights: Typically do not have voting rights in corporate matters.
Cumulative: Accumulated unpaid dividends must be paid before common stock dividends.
Non-cumulative: Only current year dividends must be paid before common dividends; prior years' unpaid dividends are not owed.
Represents reacquired shares of the company's own stock. Reasons include:
Acquisition: Buying back shares potentially for future acquisitions.
Avoid Hostile Takeovers: Purchasing stock to prevent outside control.
Employee Compensation: Issuing shares as part of employee benefits.
Market Control: Maintaining a favorable share price in the market.
Corrections of material errors in previously issued financial statements.
Reporting: Must be reported in the Retained Earnings section, affecting past financial statements.
Correction of Estimates: Distinction made that estimates do not qualify as prior period adjustments; only factual corrections are applicable.
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