Chapter 14 - Chapter 14 Contributed Capital LO 1 Management...

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Chapter 14 “Contributed Capital”
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LO 1 – Management Issues Related to Contributed Capital A Corporation … is defined as a separate legal entity having its own rights, privileges, and liabilities distinct from those of its owners
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LO 1 Corporations dominate the economy in total dollars of assets and output of goods and services However, sole proprietorships and partnerships together outnumber corporations in the U.S.
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Sources of Capital Raised by Corporations in the United States
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LO 1 Corporations’ advantages and disadvantages: Limited liability – an advantage in most cases Ease of capital generation - advantage Ease of transfer of ownership - advantage Continuous existence - advantage Taxation - disadvantage Government regulation - disadvantage
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LO 1 A share of stock is a unit of ownership in a corporation A stock certificate is issued to the owner Stockholders can transfer their ownership at will Independent registrars and transfer agents are often used to keep track of stockholders’ records
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LO 1 Authorized stock The maximum number of shares a corporation is allowed to issue
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LO 1 Par value is an arbitrary amount assigned to each share of stock Usually bears little or no relationship to the market value or book value of shares Constitutes the legal capital of the corporation Legal capital The number of shares issued times the par value Is the minimum amount that can be reported as contributed capital
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LO 1 Initial Public Offering (IPO) is the initial offering of capital stock Often, an underwriter is used for an IPO Intermediary between the corporation and the investing public Guarantees the sale of the stock for a fee Usually less than one percent of the selling price
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LO 1 The corporation records the net proceeds of the offering Amount paid by public less underwriter fees and any other direct costs of the offering
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LO 1 Start-up and Organization costs are the costs of forming a corporation Are incurred before the corporation begins operations Include State incorporation fees Attorneys’ fees Cost of printing stock certificates Accountant fees related to registering the firm’s stock Are expensed because the life of the corporation is unknown
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LO 1 Dividends … are distributions of a corporation’s assets (don’t need to be cash) to its stockholders Stockholders receive assets in proportion to their ownership
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LO 1 Stockholders earn a return on their investment by: Receiving dividends By selling shares of stock for more than they paid for them
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LO 1 Investors may prefer companies that reinvest their profits rather than pay high dividends if this leads to an increase in share prices Because investors pay less tax on capital gains than on dividend income
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LO 1 Stock option plan An agreement to issue stock to employees according to specified terms Usually offered only to management personnel
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This note was uploaded on 02/07/2011 for the course BUS 209 taught by Professor Z.gougoumanova during the Spring '11 term at American University in Bulgaria.

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Chapter 14 - Chapter 14 Contributed Capital LO 1 Management...

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