Chapter_12_Notes_Shareholders_Equity_

Chapter_12_Notes_Sha - ACCT 100 Spring 2010 Chapter 12 Class Notes Shareholders Equity Capital Contributions Distributions and Earnings

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Spring 2010 Chapter 12 Class Notes Shareholders’ Equity: Capital Contributions, Distributions and Earnings Institutional Features of Corporations: 1. Corporations follow the laws of the state in which it was incorporated. 2. Corporate charters include articles of incorporation which documents the corporation’s right to conduct operations in a particular state. 3. Corporate bylaws provide guidelines which outline internal rules and regulation of the company and are adopted/amended by the board of directors. 4. Capital stock is a contract that provides provisions regarding voting rights, earnings distributions and asset allocation in the event the company dissolves. Advantages of Corporations: 1. Limited liability for shareholders 2. Allows firms to raise substantial capital from equity issuances 3. Transfer of ownership interests (shares) can easily occur Disadvantages of Corporations: 1. Separation of Ownership and Control (creating information risk and higher cost of capital) 2. Cost of compliance with governmental regulation 3. Double taxation Stock Issuances: Factors in setting price for a new issue of stock: 1. the company’s anticipated future earnings 2. its expected dividend rate per share 3. its current financial position 4. the current state of the economy the current state of the securities market Market Value of Stocks: 1. Stock of publicly held companies is traded on organized exchanges. 2. Interaction between buyers and sellers determines the prices per share. 3. Prices set by the marketplace tend to follow the trend of a company’s earnings and dividends. 4. Factors beyond a company’s control, may cause day-to-day fluctuations in market prices. Preferred Shareholders Have initial claims to assets in case of bankruptcy before assets can be allocated to common shareholders. Cumulative Dividend Rights: receive current and past dividends before common
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This note was uploaded on 09/09/2011 for the course ACCT 100 taught by Professor Ftom during the Spring '08 term at S.F. State.

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Chapter_12_Notes_Sha - ACCT 100 Spring 2010 Chapter 12 Class Notes Shareholders Equity Capital Contributions Distributions and Earnings

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