long-term financing

long-term financing - Long-Term Financing: An Introduction...

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Long-Term Financing: An Introduction
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Chapter Outline Common Stock Corporate Long-Term Debt Preferred Stock Patterns of Financing Recent Trends in Capital Structure Summary and Conclusions
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Common Stock Shareholders’ Rights Dividends Classes of Stock
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Shareholders’ Rights Common shares are not only a financial asset but also a contract between the company and the investors The right to elect the directors of the corporation by vote constitutes the most important control device of shareholders. Directors are elected each year at an annual meeting by a vote of the holders of a majority of shares who are present and entitled to vote. The exact mechanism varies across companies. The important difference is whether shares are to be voted cumulatively or voted straight.
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Proxy Voting A proxy is the legal grant of authority by a shareholder to someone else to vote his or her shares. For convenience, most investors of public corporations usually vote by proxy.
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Cumulative versus Straight Voting With straight voting, investors vote for each director separately Shareholders have as many votes as shares and each position on the board has its own election. With straight voting, if a shareholder owns 50% + 1 of the shares, s/he will appoint all the directors. Cumulative voting permits minority participation. Under cumulative voting, the number of shares owned by a shareholder is multiplied by the number of directors to be elected. Each shareholder can distribute these votes as s/he wishes over one or more candidates.
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Imagine a firm with two shareholders: Ms. Lee and Mr. Kirby. Ms. Lee owns 60% of the firm ( = 600 shares) and Mr. Kirby 40% ( = 400 shares). There are three seats up for election on the board. Under straight voting, Ms. Lee gets to pick all three seats. Under cumulative voting, Ms. Lee has 1,800 votes ( = 600 shares × 3 seats) and Mr. Kirby has 1,200 votes. Mr. Kirby can elect at least one board member.
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This note was uploaded on 03/19/2011 for the course ACCT 440 taught by Professor Smith during the Spring '11 term at Saginaw Valley.

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long-term financing - Long-Term Financing: An Introduction...

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