Chapter_11 - Chapter 11 Contributed Capital The corporation...

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Chapter 11 Contributed Capital The corporation is an artificial legal person. Investors submit articles of incorporation to a state and receive a charter creating the corporation. Characteristics of a Corporation Separate legal existence Since the corporation is an artificial person it has a separate legal existence. Limited Liability This is a major advantage of a corporation. If a business can not meet its obligations the creditors can pursue the owner. With a corporation it is the artificial person not the stockholders who own the business. Transferable Ownership The shares of stock are the represent the ownership of the corporation. These shares can be transferred without an interruption of the corporate activity. Ability to Raise Capital The corporation can raise more money for the business by issuing more shares of stock. Additional owners are buying their way into the business. Continuous Life As an artificial person the corporation has no nature life span. It is not interrupted by the death or departure of an owner. The Structure of a Corporation Stockholders elect Directors select Top Officers Who hire Employees 1
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Regulation There are additional regulations imposed on the corporation by the state the issued the corporate charter and by the federal government. Financial statements must be sent to the state of incorporation and are public record. Taxes Everyone owes their own taxed. As an artificial person the corporation is taxed. If any of the earnings are paid to the owners as dividends the dividends are taxed on the recipients’ tax return. This is called double taxation. Some stock terms Authorized stock The number of shares the charter allows the company to create. Issued stock The number of shares created by the company Outstanding stock The number of shares still in the hands of the stockholders Classes of Stock There are two classes of stock, preferred and common. Preferred Stock Preferred stock has a preference to assets and dividends. The preference to assets means that in the event of the liquidation of the company the preferred stockholders have a prior claim over common stockholders to the assets of the company. The preference to dividends means that if the company is unable to meet both preferred and common dividends the preferred stockholders will be paid. The preferred dividend is based on: Par value times the dividend rate. If the stock is a cumulative preferred a missed preferred dividend accumulates and must be paid before the common stockholder can receive a dividend. Common Stock Common stock has voting rights. It is the common stockholders that elect directors and vote on the major issues of the corporation. The common stock has a residual claim on the earnings of the company. If the company has a very successful year this does not increase the interest paid to creditors or the preferred stock dividend. The beneficiary of the good year is the common stockholder. Par value and stated value
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Chapter_11 - Chapter 11 Contributed Capital The corporation...

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