ch 11 - Chapter 11 Shareholders Equity (c) Mikhail Pevzner...

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1 (c) Mikhail Pevzner and George Mason University Chapter 11 Shareholders’ Equity (c) Mikhail Pevzner and George Mason University What is a corporation? • A type of legal entity characterized by: Limited liability of owners; – Generally, double taxation of profits (if organized as a C-corporation in the U.S.); • Taxation on the entity level, i.e. corporate profits; • Taxation of individual shareholder profits (taxation of dividends); – Double taxation could be avoided if a corporation chooses S-corporation status; (c) Mikhail Pevzner and George Mason University Who are shareholders? • Shareholders are a type of investor in a corporation. • As opposed to debt-holders, shareholders: – Are not guaranteed any return on their investments; – Are only residual claimants to the assets of a corporation; – Have voting rights in a corporation, elect the Corporation’s board of directors, and can hire and fire management through actions of the board of directors . – A board of directors role is to represent and protect interests of shareholders. • Shareholders get dividends which are subject to double taxation.
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2 (c) Mikhail Pevzner and George Mason University Corporate Charter • Corporate charter is filed with the state in which a firm incorporates. Among other things, it spells out: – Name of a corporation; – Name of people organizing a corporation; – Number of authorized shares; – The number and names of initial Board of Directors; – Location of the corporation’s registered agent (i.e. its official office for serving legal papers). Source: wikipedia.com (c) Mikhail Pevzner and George Mason University Corporate By-Laws • A bylaw is a rule governing the internal management of an organization, such as a business corporation. • Bylaws are drafted by a corporation's founders or directors under the authority of its Charter or Articles of Incorporation . • Bylaws generally cover topics such as – how directors are elected, – how meetings of directors (and in the case of a business, shareholders) are conducted, – which officers the organization will have and a description of their duties; • Bylaws generally can be amended by an organization's Board of Directors . Source: wikipedia.com (c) Mikhail Pevzner and George Mason University Microsoft’s Articles of Incorporation and Bylaws Articles of Incorporation: http://www.microsoft.com/about/companyinformati on/corporategovernance/articlesincorp.mspx Bylaws: http://www.microsoft.com/about/companyinformati on/corporategovernance/bylaws.mspx
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3 (c) Mikhail Pevzner and George Mason University Authorized, Issued, and Outstanding Shares • Authorized shares: maximum number of shares allowed to be issued under Articles of Incorporation. • Issued shares: actual number of shares issued
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ch 11 - Chapter 11 Shareholders Equity (c) Mikhail Pevzner...

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