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76 Cards in this Set
- Front
- Back
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• Equity Securities
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o An ownership interest in a corporation – its riskier than a bond and it changes with the companies fortunes and the economy.
Make money by selling ownership interest (shares). When you buy shares you’re getting a small equity interest or ownership interest in the corporation itself. As the company gets bigger and bigger your little wedge of the pie gets larger – if it shrinks then your piece of the pie shrinks with it. |
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• When you buy a share you get :
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o Right to participate in control of the company
Very minimal o Right to participate in the earnings of the company Right to get a distribution • If you’re a shareholder of Disney – and Disney wants to make a distribution to its shareholders you get a check in the mail according to how large your share is. o Right to participate in the residual assets of the company upon dissolution. If the corporation dissolve and its assets are divided up amongst the owners and there are no assets left you as the shareholder will have the right to be part of it. |
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• Who is authorized to issue shares?
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o The authorization to issue shares is in the articles of incorporation
That number limits the amount of shares that can be sold That number can be amended in the articles of the corporation • To amend the articles there needs to be a shareholder vote. |
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• What are Issued Shares
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o They are shares that are out in the public owned by people
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• Pre-emptive Rights
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o Owners have the right to buy a part of the new issuance of shares.
o A device used to maintain the percent ownership interest in a corporation. Important – people want to know that the percentage they own will not be diluted by additional increments later on. Will actually be in the article of the corporation that says whether or not the corporation allows preemptive rights or not. |
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o What is Par Value
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A nominal amount set forth in the article for which shares cannot be sold below.
• It has no relation to the real value of the stock. |
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o Who sets the share price or initial value of shares:
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board of directors thorugh a formula.
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o Who determines the market price of traded shares?
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The market place and market trends determine the fluctuation of the price per share
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o How are the valuations made if not traded?
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the board of directors
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o Fully paid and non assessable
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Is that the board has received the amount that they set for the share
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o No Par Value Stock
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In some states this is allowed
Meaning in some states it is not required that the stock have a par value listed in the articles of incorporation. |
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o Treasury Stock
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Sometimes corporation will buy back its stock after it has been issued.
After issuing stock to shareholders it will decided that it wants to gain back the ownership or retain some ownership for itself so it buys back its own stock and put into the treasury of the corporation and that is called treasury stock. Called authorized but not issued – meaning its not in circulation. |
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o Common Stock
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A class of stock – often the only class in corporations.
Stock that has no preferential rights or special contractual rights attached to it. |
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o Preferred Stock
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They have a preferential right to get dividend.
Extra benefit for example preferred benefit when distributions or the liquidation of a company is made which is better because you get paid first and the money might run out for the rest. |
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o Participating Preferred
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Another class of stock which is a hybrid between the first two.
They get paid dividend with the common share holder and the preferred share holder. So they participate at both levels. |
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o Stock Options
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In the 1990’s there was a dramatic change in the way executives were paid – seen in the early years of the internet with the tech boom. Executive compensation was being tied to stock or the promise that they can buy special stocks.
Entitles the holder to purchase in the corporation shares of a classified class at a given date and at a given price. |
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o Stock Warrants
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Basically the same thing as stock options only they are freely transferable ( you can sell them)
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o Stock Split
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Corporations decide that for every share that is out in the world they will split it and split the price in half.
They do this because they think that the shares are more marketable if the price is exorbant. Just a marketing technique |
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• Distribution and Dividends
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o The transfer of money or property to or for the benefit of the shareholder. And the dividend is a type of distribution. Usually a payment of cash or an additional payment of shares to the shareholder.
o The board of directors gets to decide whether to make distributions and dividends. Generally and completely at the discretion of the board of directors. |
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Exception to Distribution and Dividends
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Limited – can’t deplete the company’s capital while making distributions.
Every state has different rules as to how distributions can be made: First you do Equity insolvency then Balance sheet test depending on which state you live in. |
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• Equity Insolvency test
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o No payments of dividends or the making of distribution when the corporation is insolvent or the distribution would render the company insolvent.
o Based on cash flow – would look at the income statement at the cash flow. o Insolvency means – unable to pay debts as they become due in the ordinary course. |
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• Balance Sheet Test – Varies by state.
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o Think Assets of a corporation like this: layer cake
Earned Surplus = Retained Earnings Profits • Also called retained earnings just think of it as the profits. • In most states you can pay dividends out of this amount. • Usually done in most states. Capital Surplus – Share Value above Par • In some states this can be done with a calculation I do not understand. Stated Capital = Value of share at par • In no state can you take this out of the company |
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• Distribution in Partial Liquidation
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o When distributions are made in partial liquidations they are made more liberally in all states down to the level of capital surplus.
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• Redemption
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When a corporation buys back its stock.
Treasury stock is what we call the stock after its bought back redemption is the process of buying it back. The law only allows corporations to buy back outstanding stock out of that top layer of retained earnings. The law does not want to allow corporations to shake up its capital structure just to be able to buy back control |
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• Declaration of Dividends
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The boards discretion to the shareholders
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• Owners of corporations are called
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shareholders
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ownership interest are called
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shares
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coorperations have what kid of liabiliy
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limited liability
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corperations have what kind of management
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centrally managed
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corperations have what kind of transfer
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easily exchangeable
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corporations have what kind of existance
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perpetual - never ending.
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what rights do corporations have
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right to : sign contracts - hire workers - constitutional rights - rights to buy property and right to aquire assets.
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what is a foreign corporation
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a corporation that has continuous systematic and regular business in a state in which it was not filed under. - if so they have to file as a foreign corporation
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whats a closely held corporation
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a corporation that is owned by 50 shareholders or less. run more like a partnership
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publicly owned corporations are
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corporations owned by wide range of people and that is regularly exchanged in the stock exchange.
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What is a sub chapter S corporation
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b. S corporations are special: they are corporations that can be taxed as if they were partnerships with pass through taxations.
c. Only available to small corporations they have to meet various criteria: a. No more than 100 share holders. b. Only one class of stock. c. They cannot have any non – U.S owners. No resident alien owners |
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waht are promoters
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a. How corporations begin – they go around before the entity is even formed asking and finding people to buy stock in the corporation before it is even formed.
1. These people are called Subscribers a. Subscribers are owed fiduciary duty form the promoter. b. Creates the corporation papers and files them. c. Promoter’s job is done upon the incorporation of the entity. d. The promoter is personally liable for the contracts that are made for the corporation before it exist – even after it has been formed. 1. Exception: if the party is then contracting with the corporation to be know that the corporation does not yet exist and agrees to look solely to the corporation instead of the promoter for payment then the promoter is not personally liable. |
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what are articles
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to fix these you have to have a vote of all the share holders
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by laws
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to fix this the board of director decides.
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how do you incorporate?
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1. File piece of paper
2. Hold meeting 3. Approve by laws 4. Get board of directors |
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what are bonds?
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o When you make a loan to the corporation they promise to pay you back in time.
o Promise to repay P at a stated time and to pay interest. Usually at a fixed rate while the debt is outstanding. o Also called debt securities (investments) |
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• Who has authority to issue the bond?
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the board of directors
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• Indenture Agreements
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governs the issuance of bonds between the corporation and the bank
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what is LBO
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Leverage Buy Out
o When a group of investors tries to buy the corporation while there is significant debt usually in the form of junk bonds. They secure bonds with corporation assets. To fend off another group trying to buy the corporation. |
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• Bond Rating
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are done by rating agencies Agencies that rate how able corporations are to pay their bonds
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What is a sub chapter S corporation
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b. S corporations are special: they are corporations that can be taxed as if they were partnerships with pass through taxations.
c. Only available to small corporations they have to meet various criteria: a. No more than 100 share holders. b. Only one class of stock. c. They cannot have any non – U.S owners. No resident alien owners |
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What is a sub chapter S corporation
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b. S corporations are special: they are corporations that can be taxed as if they were partnerships with pass through taxations.
c. Only available to small corporations they have to meet various criteria: a. No more than 100 share holders. b. Only one class of stock. c. They cannot have any non – U.S owners. No resident alien owners |
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What is a sub chapter S corporation
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b. S corporations are special: they are corporations that can be taxed as if they were partnerships with pass through taxations.
c. Only available to small corporations they have to meet various criteria: a. No more than 100 share holders. b. Only one class of stock. c. They cannot have any non – U.S owners. No resident alien owners |
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waht are promoters
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a. How corporations begin – they go around before the entity is even formed asking and finding people to buy stock in the corporation before it is even formed.
1. These people are called Subscribers a. Subscribers are owed fiduciary duty form the promoter. b. Creates the corporation papers and files them. c. Promoter’s job is done upon the incorporation of the entity. d. The promoter is personally liable for the contracts that are made for the corporation before it exist – even after it has been formed. 1. Exception: if the party is then contracting with the corporation to be know that the corporation does not yet exist and agrees to look solely to the corporation instead of the promoter for payment then the promoter is not personally liable. |
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waht are promoters
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a. How corporations begin – they go around before the entity is even formed asking and finding people to buy stock in the corporation before it is even formed.
1. These people are called Subscribers a. Subscribers are owed fiduciary duty form the promoter. b. Creates the corporation papers and files them. c. Promoter’s job is done upon the incorporation of the entity. d. The promoter is personally liable for the contracts that are made for the corporation before it exist – even after it has been formed. 1. Exception: if the party is then contracting with the corporation to be know that the corporation does not yet exist and agrees to look solely to the corporation instead of the promoter for payment then the promoter is not personally liable. |
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waht are promoters
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a. How corporations begin – they go around before the entity is even formed asking and finding people to buy stock in the corporation before it is even formed.
1. These people are called Subscribers a. Subscribers are owed fiduciary duty form the promoter. b. Creates the corporation papers and files them. c. Promoter’s job is done upon the incorporation of the entity. d. The promoter is personally liable for the contracts that are made for the corporation before it exist – even after it has been formed. 1. Exception: if the party is then contracting with the corporation to be know that the corporation does not yet exist and agrees to look solely to the corporation instead of the promoter for payment then the promoter is not personally liable. |
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what are articles
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to fix these you have to have a vote of all the share holders
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what are articles
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to fix these you have to have a vote of all the share holders
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what are articles
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to fix these you have to have a vote of all the share holders
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by laws
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to fix this the board of director decides.
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by laws
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to fix this the board of director decides.
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by laws
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to fix this the board of director decides.
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how do you incorporate?
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1. File piece of paper
2. Hold meeting 3. Approve by laws 4. Get board of directors |
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how do you incorporate?
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1. File piece of paper
2. Hold meeting 3. Approve by laws 4. Get board of directors |
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how do you incorporate?
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1. File piece of paper
2. Hold meeting 3. Approve by laws 4. Get board of directors |
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what are bonds?
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o When you make a loan to the corporation they promise to pay you back in time.
o Promise to repay P at a stated time and to pay interest. Usually at a fixed rate while the debt is outstanding. o Also called debt securities (investments) |
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what are bonds?
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o When you make a loan to the corporation they promise to pay you back in time.
o Promise to repay P at a stated time and to pay interest. Usually at a fixed rate while the debt is outstanding. o Also called debt securities (investments) |
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what are bonds?
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o When you make a loan to the corporation they promise to pay you back in time.
o Promise to repay P at a stated time and to pay interest. Usually at a fixed rate while the debt is outstanding. o Also called debt securities (investments) |
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• Who has authority to issue the bond?
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the board of directors
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• Who has authority to issue the bond?
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the board of directors
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• Who has authority to issue the bond?
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the board of directors
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• Indenture Agreements
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governs the issuance of bonds between the corporation and the bank
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• Indenture Agreements
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governs the issuance of bonds between the corporation and the bank
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• Indenture Agreements
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governs the issuance of bonds between the corporation and the bank
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what is LBO
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Leverage Buy Out
o When a group of investors tries to buy the corporation while there is significant debt usually in the form of junk bonds. They secure bonds with corporation assets. To fend off another group trying to buy the corporation. |
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what is LBO
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Leverage Buy Out
o When a group of investors tries to buy the corporation while there is significant debt usually in the form of junk bonds. They secure bonds with corporation assets. To fend off another group trying to buy the corporation. |
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what is LBO
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Leverage Buy Out
o When a group of investors tries to buy the corporation while there is significant debt usually in the form of junk bonds. They secure bonds with corporation assets. To fend off another group trying to buy the corporation. |
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• Bond Rating
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are done by rating agencies Agencies that rate how able corporations are to pay their bonds
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• Bond Rating
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are done by rating agencies Agencies that rate how able corporations are to pay their bonds
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• Bond Rating
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are done by rating agencies Agencies that rate how able corporations are to pay their bonds
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• Types of Bonds
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o Secured
Repayment of which is secured by the repayment of certain property. o Unsecured Debentures Lost made a promise. o Income Percent is paid only if the ow makes certain earning target o Participating Interest paid no matter what but add eau percent paid if corporation hits certain earnings targets. o Convertible Bond that can convert into stock o Callable Bond a wo. Can pay off early in the interest of saving money. |
