Right to share proportionally in assets remaining

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Right to share proportionally in assets remaining after liabilities have been paid in a liquidation 3)Right to vote on SH matters of great importance, such as a merger (done at annual/special meeting)SH sometimes have right to share proportionally in any new stock sold pre-emptive rightoCompany who wants to sell stock must first offer it to existing SH before offering it to general publicoPurpose: Give SH opportunity to protect proportionate ownership in the corporation DividendsFeature of corporation: have shares of stocks on which they are authorized by their bylaws to pay dividends to their SHDividends:return on capital of corporation paid by company to SH in either cash/stock; payments made out of a firm’s earnings to its owners (cash/stock)Payment of dividends is at discretion of BoDClasses of StockSome firms have more than one class of common stockClasses are created with unequal voting rightsEx: Non-voting common stockoMust receive dividends no lower than dividends on voting shares Why dual classes of stocks?oControl of company!oManagement of a firm can raise equity capital by issuing non-voting/limited-voting stock while still maintaining control Own only 51% of voting stock to control a company non-voting SH could be excluded in event of takeover bid for companyProtect non-voting SH:o“Coattail” provision give non-voting SH either right to vote or to convert their shares into voting shares that can be tendered to the takeover bid oInvestors believe that coattails have protective value but remain skeptical that they afford complete protection8.3 Preferred Stock FeaturesPreferred stock:stock with dividend priority over common stock, normally with a fixed dividend rate, often without voting rightsIf firm liquidated creditors then preferred SH then common SHForm of equity from legal, tax, and regulatory standpoint Stated ValuePreferred shares have a stated liquidating valueCash dividends are described in dollars per share or as a % of stated value
Ex: Fixed quarterly dividend of $0.275 Dividend yield of 4.4% of $25 stated share value (0.275 X 4 = 1.1 1.1 / 25 = 4.4%)Cumulative and Non-Cumulative DividendsBoD may decide not to pay dividends on preferred sharesCumulative: if not paid in a particular year carried forward as arrearage Cumulated preferred dividends plus current preferred dividends must be paid before common SH receive anythingUnpaid preferred dividends are not debts of the firmDirectors can defer preferred dividends indefinitelyBut in such cases:1)Common SH must also forgo dividends2)Holders of preferred shares are often granted voting and other rights if preferred dividends have not been paid for some timeDon’t receive interest on cumulated dividends thus firms have incentive to delay paying it

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