7252569-MIdterm-1 (dragged) 49

7252569-MIdterm-1 (dragged) 49 - shareholder may sacrifice...

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Kieso, Weygandt, Warfield, Young, Wiecek Intermediate Accounting, Eighth Canadian Edition 15-15 5. Share Capital or Capital Stock System. Each share represents an ownership right with the following privileges: a. To share proportionately in profits and losses. b. To share proportionately in management. c. To share proportionately in corporate assets upon liquidation. d. The CBCA also allows for a fourth right, the pre-emptive right, to be assigned. This pre-emptive right allows a shareholder to share proportionately in any new issues of shares in the same class, thus protecting an existing shareholder against dilution of ownership interest. The share system provides easy transferability of ownership interests. 6. Variety of ownership interests. a. Common Shares: The residual corporate interest that bears the ultimate risk of loss and receives the benefits. b. Preferred Shares: In return for certain preferences to earnings, a preferred
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Unformatted text preview: shareholder may sacrifice a voice in management or the right to share in profits above a stated amount. c. Many classes of shares, which vary in terms of rights and privileges, are possible. One share class, however, must represent the basic ownership interest (referred to as common shares). 7. Limited Liability: Shareholders cannot lose more than their investment. 8. Formality of Profit Distribution: a. No amounts may be distributed among the owners unless corporate capital is maintained intact. b. The board of directors must formally approve distributions to shareholders. c. Dividends must be in full agreement with the capital share provisions as to preferences, participation and the like. B. Characteristics of Preferred Shares The most common features are: 1. Dividend preferences 2. Preference to assets on liquidation 3. Convertible into common shares...
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