AFM 101 Chapter 12 Notes - AFM 101 Chapter 12 Ownership of...

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AFM 101 Chapter 12 Ownership of a corporation Corporations are treated as a separate entities, which means they can own, sell and buy property as well as sue or be sued To become a corporation you must submit an application for a charter to the government. The charter has various things such as the nsame of the business, its purpose etc Benefits of share ownership When you invest in a corporation you become a shareholder or stockholder As an owner of shares you get: 1. Management voice – right to vote at shareholder meetings 2. Dividends – receive a portion of the company’s income 3. Residual claim – when a company liquidates you get an amount of the assets proportionate to the amount of shares that you own The shareholders elect the members of the board of directors, who appoints the president, who employs the VPs and so on Each meeting has a notice of annual general shareholder meeting which is like an invitation card. - Most owners do not attend, but the notice has a proxy card which is like a ballot that they fill out to vote Authorized, issued and outstanding shares When a corporation is created, the corporate charter specifies the type and maximum amount of shares that it can issue - The max is called authorized number of shares o This number is usually much larger than the corporation will ever issue so that it provides them with flexibility o Can even be unlimited Issued shares are shares that have been sold or issued Outstanding shares is pretty much the same thing, but it is the number of shares owned by shareholders at a particular day Earnings per share Ratio Answers: how profitable is the company? Equation already in ratio chart - Shows how profitable a company is compare to other or to previous years in a simpler manner - Rather than comparing changes in net income which are big numbers, we can just look at this ratio Caution - Can be misleading when comparing two companies because een though they have similar EPS they can have really different share prices Common Share transaction There are two main types of shares, common and preferred All corporations issue common shares, but only some issue preferred Common shares give basic voting rights and are ranked last in terms of dividends and residual claim
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- Their dividend rate is determined by the BoD whereas for preferred shares are determined in the contract No par value and par value shares Par value is the nominal value per share specified in the charter. It serves as the basis for legal capital No par value shares they have no par value specified in the charter Before people use to issue par value shares because par value is the amount that must be kept in order to make sure shareholders don’t go bankrupt along with the company. This means the par value is a part of capital that cannot be spent Legal capital
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