Corp Accounting

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“FASB”

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FINANCIAL
ACCOUNTING
STANDARDS BOARD

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The central organizing principles are set forth in a series of

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“Statements of Financial Accounting Concepts”: broad conceptual frameworks on which more particularized pronouncements are built.

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Particular pronouncements take the form of

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Statements of Financial Accounting Standards.”

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Qualities of Accounting

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Relevant (timely)
Reliable (free of error/misstatement)
Comparable (as to assumptions)
Consistent (period-to-period)

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Realization

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recognize revenue only when earned

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Matching

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recognize expenses allocable to revenue generation

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Components of Financial Statements

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Balance Sheet (A = L + OE)
Income Statement
(R - E = NI)
Statement of Changes in Equity
Statement of Cash Flows
Footnotes

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Assets

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CASH, A/R, INVENTORY, EQUIPMENT

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Liabilities

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A/P, N/P

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Owners’ Equity

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(RESIDUAL INTEREST IN ASSETS - LIABILITIES)
OWNER STAKE

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THE STATEMENT OF RETAINED EARNINGS

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BEGINNING BALANCE
+ PROFITS
- LOSSES
+ADDITIONAL INVESTMENT
- WITHDRAWALS
= ENDING BALANCE

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THE STATEMENT OF CASH FLOWS:

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DETERMINE SOURCES OF CASH DURING THE PERIOD
DETERMINE USES OF CASH DURING THE PERIOD
THE DIFFERENCE IS AN INCREASE OR DECREASE IN CASH FOR THE PERIOD

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MANAGEMENT LETTERS

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ADVISES MANAGEMENT OF WEAKNESS IN INTERNAL CONTROL
REVIEWED BY AUDIT COMMITTEE
MANAGEMENT RESPONSE
PROPOSE CHANGES

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THE JOURNAL

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(DAILY BOOK)
1st BOOK IN ACCOUNTING SYSTEM
1st RECORD OF EACH TRANSACTION

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THE LEDGER

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the second book of accounting
Contains accounts by transaction type (e.g., cash, land, loans, owners’ equity)
Daily journal entries are posted to the ledger accounts, positioned as left-side or right-side entries as they appear in the journal
The ledger accounts are called T-accounts to enable posting to left and right sides, in turn to maintain the fundamental equation and balance

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Jack and Jill are entrepreneurial lovebirds who form a corporation, (“J&J, Inc.”) to run a bicycle repair shop in the bucolic western US. They begin business on July 1. The following transactions occur during July.
Prepare journal entries, T-Accounts, and a balance sheet as of July 31 for J&J.

(a) Jack pays $5,000 to J&J in exchange for 100 shares of J&J stock.

(b) Jill transfers to J&J title to land, valued at $5,000, in exchange for 100 shares of J&J stock.

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Debits Credits
la. Cash 5,000
Owners' Equity 5,000
lb. Land 5,000
Owners' Equity 5,000

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J&J buys tools, supplies and a large tent from ABC Supplies for $1,200, charging the purchase to its account.

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Debits Credits
la.Cash 5,000
Owners' Equity 5,000
lb.Land 5,000
Owners' Equity 5,000
2. Supplies 1,200
Accounts Payable 1,200

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Closing Process

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Close Income Statement Accounts into Balance Sheet
Close each Revenue and Expense Account into nominal account called Profit & Loss (“P&L”) Account, in turn closed to OE

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balance sheet

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(listing assets) is a set of permanent accounts, “as of” a certain date (Dec. 31, 2011).

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income statement

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(listing expenses) is a set of periodic accounts, “for” a period of time (the year 2011).

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2 PRIMARY METHODS OF ACCOUNTING FOR REVENUES AND EXPENSES:

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CASH BASIS
ACCRUAL BASIS

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CASH BASIS

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RECORD TRANSACTIONS WHEN:
$ (MONEY) RECEIVED (REVENUE)
$ (MONEY) PAID (EXPENSE)

Generally used by INDIVIDUALS and for tax purposes by SMALL BUSINESS

NOT RECOGNIZED FOR GAAP

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ACCRUAL BASIS

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USES MATCHING PRINCIPLE:
RECORD REVENUE WHEN EARNED
RECORD EXPENSE WHEN INCURRED

RECEIPT OR PAYMENT OF $ IS IRRELEVANT WITH REGARD TO RECOGNITION

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Journal Entries for COGS & Inventory

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Perpetual v. Periodic

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Measuring COGS & Inventory

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Specific ID v. Cost Flow Assumptions
(LIFO, FIFO, Average)

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Conservatism

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Lower of Cost or Market (LCM)

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COGS

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= BI + P + EI

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FIFO

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more accurate in BS than in IS
(current costs on BS, old costs on IS
=>higher asset value, lower COGS, higher profit

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LIFO

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more accurate in IS than in BS
(current costs on IS, old costs on BS
=> lower asset value, higher COGS, lower profit)

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Asset’s Historical Cost

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Price (original invoice/purchase)
+ Freight-In* (shipping)
+ Installation Costs*
+ Improvements* (not repairs/maintenance)
Cost

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Asset’s Scrap/Salvage Value

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Expected value at end of useful life to the reporting business

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Depreciable Base =

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Cost - Scrap Value

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Annual Depreciation (Straight Line)

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(Cost - Scrap Value) / Useful Life

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Accelerated Depreciation

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Accelerate: allocate/expense larger amounts of fixed asset's net cost (depreciable base) in earlier years of expected useful life and smaller amounts in later years.

Increase fraction for earlier periods/decrease for later.

Two GAAP methods:
sum-of-years’ digits
declining balance

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Sum-of-Years’ Digits (SYD)

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Annual depreciation expense: fraction of asset’s net cost.
Early year fractions > straight line fractions; later years < that.
Fractions determined by summing (adding) years' digits, beginning with number of years of asset's expected useful life.

Denominator: if expected useful life is 5 years, then digits to be summed are 5 + 4 + 3 + 2 + 1 = 15. n(n+1)/2

Numerator: count down from highest digit: 5, 4, 3, 2, 1.

Fractions: Year: 1 2 3 4 5
5/15 4/15 3/15 2/15 1/15

Apply fraction to asset’s net cost.

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Double-Declining Balance (DDB)

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Annual depreciation expense: multiple of straight-line.
Most common: double (double-declining balance).
Double the fraction that applies under straight-line method.

If fraction under straight line method is 1/5 (20%), then under double-declining balance method = 2/5 (40%).

Apply fraction to cost unadjusted by scrap value, but net of previous year(s)’ accumulated depreciation. However, take no more depreciation when scrap value reached.

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Tax Depreciation Distinguished

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U.S. Federal income tax depreciation rules differ from GAAP
MACRS: Modified Accelerated Cost Recovery System
Defines asset classes, specifying useful lives and depreciation method/rate

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Consistency

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same GAAP approach period-to-period but GAAP and tax can differ and often do

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Inflation

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historical cost principle (anomaly?)

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Asset’s Historical Cost

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Price (original invoice/purchase)
+ Freight-In* (shipping)
+ Installation Costs*
+ Improvements* (not repairs/maintenance)
Cost

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Asset’s Scrap/Salvage Value

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Expected value at end of useful life to the reporting business

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Depreciable Base =

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Cost - Scrap Value

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Annual Depreciation (Straight Line)

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(Cost - Scrap Value) / Useful Life

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Accelerated Depreciation

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Accelerate: allocate/expense larger amounts of fixed asset's net cost (depreciable base) in earlier years of expected useful life and smaller amounts in later years.

Increase fraction for earlier periods/decrease for later.

Two GAAP methods:
sum-of-years’ digits
declining balance

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Sum-of-Years’ Digits (SYD)

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Annual depreciation expense: fraction of asset’s net cost.
Early year fractions > straight line fractions; later years < that.
Fractions determined by summing (adding) years' digits, beginning with number of years of asset's expected useful life.

Denominator: if expected useful life is 5 years, then digits to be summed are 5 + 4 + 3 + 2 + 1 = 15. n(n+1)/2

Numerator: count down from highest digit: 5, 4, 3, 2, 1.

Fractions: Year: 1 2 3 4 5
5/15 4/15 3/15 2/15 1/15

Apply fraction to asset’s net cost.

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Double-Declining Balance (DDB)

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Annual depreciation expense: multiple of straight-line.
Most common: double (double-declining balance).
Double the fraction that applies under straight-line method.

If fraction under straight line method is 1/5 (20%), then under double-declining balance method = 2/5 (40%).

Apply fraction to cost unadjusted by scrap value, but net of previous year(s)’ accumulated depreciation. However, take no more depreciation when scrap value reached.

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Tax Depreciation Distinguished

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U.S. Federal income tax depreciation rules differ from GAAP
MACRS: Modified Accelerated Cost Recovery System
Defines asset classes, specifying useful lives and depreciation method/rate

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Consistency

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same GAAP approach period-to-period but GAAP and tax can differ and often do

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Inflation

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historical cost principle (anomaly?)

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Asset’s Historical Cost

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Price (original invoice/purchase)
+ Freight-In* (shipping)
+ Installation Costs*
+ Improvements* (not repairs/maintenance)
Cost

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Asset’s Scrap/Salvage Value

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Expected value at end of useful life to the reporting business

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Depreciable Base =

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Cost - Scrap Value

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Annual Depreciation (Straight Line)

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(Cost - Scrap Value) / Useful Life

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Accelerated Depreciation

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Accelerate: allocate/expense larger amounts of fixed asset's net cost (depreciable base) in earlier years of expected useful life and smaller amounts in later years.

Increase fraction for earlier periods/decrease for later.

Two GAAP methods:
sum-of-years’ digits
declining balance

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Sum-of-Years’ Digits (SYD)

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Annual depreciation expense: fraction of asset’s net cost.
Early year fractions > straight line fractions; later years < that.
Fractions determined by summing (adding) years' digits, beginning with number of years of asset's expected useful life.

Denominator: if expected useful life is 5 years, then digits to be summed are 5 + 4 + 3 + 2 + 1 = 15. n(n+1)/2

Numerator: count down from highest digit: 5, 4, 3, 2, 1.

Fractions: Year: 1 2 3 4 5
5/15 4/15 3/15 2/15 1/15

Apply fraction to asset’s net cost.

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Double-Declining Balance (DDB)

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Annual depreciation expense: multiple of straight-line.
Most common: double (double-declining balance).
Double the fraction that applies under straight-line method.

If fraction under straight line method is 1/5 (20%), then under double-declining balance method = 2/5 (40%).

Apply fraction to cost unadjusted by scrap value, but net of previous year(s)’ accumulated depreciation. However, take no more depreciation when scrap value reached.

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Tax Depreciation Distinguished

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U.S. Federal income tax depreciation rules differ from GAAP
MACRS: Modified Accelerated Cost Recovery System
Defines asset classes, specifying useful lives and depreciation method/rate

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Consistency

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same GAAP approach period-to-period but GAAP and tax can differ and often do

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Inflation

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historical cost principle (anomaly?)

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Asset’s Historical Cost

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Price (original invoice/purchase)
+ Freight-In* (shipping)
+ Installation Costs*
+ Improvements* (not repairs/maintenance)
Cost

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Asset’s Scrap/Salvage Value

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Expected value at end of useful life to the reporting business

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Depreciable Base =

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Cost - Scrap Value

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Annual Depreciation (Straight Line)

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(Cost - Scrap Value) / Useful Life

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Accelerated Depreciation

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Accelerate: allocate/expense larger amounts of fixed asset's net cost (depreciable base) in earlier years of expected useful life and smaller amounts in later years.

Increase fraction for earlier periods/decrease for later.

Two GAAP methods:
sum-of-years’ digits
declining balance

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Sum-of-Years’ Digits (SYD)

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Annual depreciation expense: fraction of asset’s net cost.
Early year fractions > straight line fractions; later years < that.
Fractions determined by summing (adding) years' digits, beginning with number of years of asset's expected useful life.

Denominator: if expected useful life is 5 years, then digits to be summed are 5 + 4 + 3 + 2 + 1 = 15. n(n+1)/2

Numerator: count down from highest digit: 5, 4, 3, 2, 1.

Fractions: Year: 1 2 3 4 5
5/15 4/15 3/15 2/15 1/15

Apply fraction to asset’s net cost.

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Double-Declining Balance (DDB)

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Annual depreciation expense: multiple of straight-line.
Most common: double (double-declining balance).
Double the fraction that applies under straight-line method.

If fraction under straight line method is 1/5 (20%), then under double-declining balance method = 2/5 (40%).

Apply fraction to cost unadjusted by scrap value, but net of previous year(s)’ accumulated depreciation. However, take no more depreciation when scrap value reached.

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Tax Depreciation Distinguished

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U.S. Federal income tax depreciation rules differ from GAAP
MACRS: Modified Accelerated Cost Recovery System
Defines asset classes, specifying useful lives and depreciation method/rate

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Consistency

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same GAAP approach period-to-period but GAAP and tax can differ and often do

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Inflation

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historical cost principle (anomaly?)

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Asset’s Historical Cost

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Price (original invoice/purchase)
+ Freight-In* (shipping)
+ Installation Costs*
+ Improvements* (not repairs/maintenance)
Cost

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Asset’s Scrap/Salvage Value

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Expected value at end of useful life to the reporting business

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Depreciable Base =

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Cost - Scrap Value

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Annual Depreciation (Straight Line)

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(Cost - Scrap Value) / Useful Life

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Accelerated Depreciation

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Accelerate: allocate/expense larger amounts of fixed asset's net cost (depreciable base) in earlier years of expected useful life and smaller amounts in later years.

Increase fraction for earlier periods/decrease for later.

Two GAAP methods:
sum-of-years’ digits
declining balance

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Sum-of-Years’ Digits (SYD)

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Annual depreciation expense: fraction of asset’s net cost.
Early year fractions > straight line fractions; later years < that.
Fractions determined by summing (adding) years' digits, beginning with number of years of asset's expected useful life.

Denominator: if expected useful life is 5 years, then digits to be summed are 5 + 4 + 3 + 2 + 1 = 15. n(n+1)/2

Numerator: count down from highest digit: 5, 4, 3, 2, 1.

Fractions: Year: 1 2 3 4 5
5/15 4/15 3/15 2/15 1/15

Apply fraction to asset’s net cost.

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Double-Declining Balance (DDB)

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Annual depreciation expense: multiple of straight-line.
Most common: double (double-declining balance).
Double the fraction that applies under straight-line method.

If fraction under straight line method is 1/5 (20%), then under double-declining balance method = 2/5 (40%).

Apply fraction to cost unadjusted by scrap value, but net of previous year(s)’ accumulated depreciation. However, take no more depreciation when scrap value reached.

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Tax Depreciation Distinguished

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U.S. Federal income tax depreciation rules differ from GAAP
MACRS: Modified Accelerated Cost Recovery System
Defines asset classes, specifying useful lives and depreciation method/rate

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Consistency

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same GAAP approach period-to-period but GAAP and tax can differ and often do

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Inflation

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historical cost principle (anomaly?)

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Goodwill

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Accounting concept:
business acquisition purchase price > fair value of net assets acquired

Old Purchase Method: recorded and amortized
(up to 40 years, using straight-line method) reduced earnings

Old Pooling Method: not recorded and not amortized
(if conditions met) no earnings charges

Current Compromise Rule: recorded but not amortized
(examined for impairment) no earnings charges unless impaired then reduces earnings

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Other Intangibles

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Lacking physical substance, yet bear economic benefits

Patents, trademarks, copyrights, franchises

Development costs usually expensed (R&D, SG&A)

Acquisition costs can be assets (family buys franchise)

Finite life intangibles generally amortized

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Loss Contingencies

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Possible liabilities unripe for full burdening of balance sheet;

but serious enough to warrant disclosure.

Significant lawyer involvement to ascertain:
probability and magnitude.

Significant variation in governing professional literature for:
lawyers versus accountants/auditors.

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CSA

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Common Stock Account = # of outstanding shares of common stock issues x par value

This dollar amount is what Del considers capital and what NY considers stated capital

If preferred stock issued, there is also a sub account = # of preferred shares issued x par value

The offsetting entry is Cash.

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Additional Paid In Capital Account (APIC)

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Excess of consideration paid for stock over stock's par value

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Retained Earnings or Deficit

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amount not paid out to owners in form of dividend

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Other Comprehensive Income or Loss

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Making money from activities not related to your ongoing operations

Offset by other comprehensive income or loss account

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Par Value

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There should be some minimum amount paid for a stock.

This forms a "capital cushion."

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Capital Cushion

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That amount of money must remain so creditors have something in case corp goes belly up.

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Watered Stock

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Paying stock that is less than par value.

Means other creditors can go after you for the difference.

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Who determines PV

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normally the attorneys who advise the owners on creating the IPO.

Minimizing par value lowers the creditors protections but maximizes ability to pay dividends.

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No Par Value Stock

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means stock has no stated par value in advance.

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Dividends Payable

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1) At discretion of board
2) Must satisfy legal capital rules

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Surplus

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Excess of Co's of net assets(TA - TL) over amount determined to be capital

You can give back amount in retained earnings and APIC account and other comprehensive income (OCI).

If surplus is O is less than O, under Del law you can pay distribution equal to Net Profits from current year and/or previous year.

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Hypo: Corp has 100K of CS outstanding. PV = $2/share. Total assets = 3 mm. Total Liabilities - 2.6 mm. Net earnings this year = 400K loss. Net earnings last year = 100K profit. Can we pay a dividend? If so, how much on the aggregate? And on a per share basis.

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1) Does it have surplus? If so, end of analysis. Surplus = TA - TL - Capital.

Surplus = $200,000 in aggregate.
Per share basis = $2.00/share

No need to go to net income prong.

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Same prob. Assume liabilities are 2.9 mm.

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1) Surplus = - 100K.

2) Go to Net Income Prong. Pay out of current years profits and/or preceding. You can pay dividends out of net earnings last year.

Capital cushion being reduced on balance sheet, and capital account being reduced as well.

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174(a)

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Directors are J&S liable for illegal dividends paid.

Exception. Only those willfully or negligently acting in paying dividends are liable.

Any shareholder who takes a dividend knowing that it was illegal, can be sued for contribution.

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172

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Directors can rely on determination of accountants, attorneys and experts for payment of dividends.

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§ 151(a)

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Classes and series of stock; redemption; rights.

(a) Every corporation may issue 1 or more classes of stock or 1 or more series of stock within any class thereof, any or all of which classes may be of stock with par value or stock without par value and which classes or series may have such voting powers, full or limited, or no voting powers, and such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as shall be stated and expressed in the certificate of incorporation or of any amendment thereto, or in the resolution or resolutions providing for the issue of such stock adopted by the board of directors pursuant to authority expressly vested in it by the provisions of its certificate of incorporation. Any of the voting powers, designations, preferences, rights and qualifications, limitations or restrictions of any such class or series of stock may be made dependent upon facts ascertainable outside the certificate of incorporation or of any amendment thereto, or outside the resolution or resolutions providing for the issue of such stock adopted by the board of directors pursuant to authority expressly vested in it by its certificate of incorporation, provided that the manner in which such facts shall operate upon the voting powers, designations, preferences, rights and qualifications, limitations or restrictions of such class or series of stock is clearly and expressly set forth in the certificate of incorporation or in the resolution or resolutions providing for the issue of such stock adopted by the board of directors. The term "facts," as used in this subsection, includes, but is not limited to, the occurrence of any event, including a determination or action by any person or body, including the corporation. The power to increase or decrease or otherwise adjust the capital stock as provided in this chapter shall apply to all or any such classes of stock.

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§ 152.

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Issuance of stock; lawful consideration; fully paid stock.

The consideration, as determined pursuant to § 153(a) and (b) of this title, for subscriptions to, or the purchase of, the capital stock to be issued by a corporation shall be paid in such form and in such manner as the board of directors shall determine. The board of directors may authorize capital stock to be issued for consideration consisting of cash, any tangible or intangible property or any benefit to the corporation, or any combination thereof. In the absence of actual fraud in the transaction, the judgment of the directors as to the value of such consideration shall be conclusive. The capital stock so issued shall be deemed to be fully paid and nonassessable stock upon receipt by the corporation of such consideration; provided, however, nothing contained herein shall prevent the board of directors from issuing partly paid shares under § 156 of this title.

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§ 153.(a)-(c)

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Consideration for stock.

(a) Shares of stock with par value may be issued for such consideration, having a value not less than the par value thereof, as determined from time to time by the board of directors, or by the stockholders if the certificate of incorporation so provides.

(b) Shares of stock without par value may be issued for such consideration as is determined from time to time by the board of directors, or by the stockholders if the certificate of incorporation so provides.

(c) Treasury shares may be disposed of by the corporation for such consideration as may be determined from time to time by the board of directors, or by the stockholders if the certificate of incorporation so provides.

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§ 154.

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Determination of amount of capital; capital, surplus and net assets defined.

Any corporation may, by resolution of its board of directors, determine that only a part of the consideration which shall be received by the corporation for any of the shares of its capital stock which it shall issue from time to time shall be capital; but, in case any of the shares issued shall be shares having a par value, the amount of the part of such consideration so determined to be capital shall be in excess of the aggregate par value of the shares issued for such consideration having a par value, unless all the shares issued shall be shares having a par value, in which case the amount of the part of such consideration so determined to be capital need be only equal to the aggregate par value of such shares. In each such case the board of directors shall specify in dollars the part of such consideration which shall be capital. If the board of directors shall not have determined (1) at the time of issue of any shares of the capital stock of the corporation issued for cash or (2) within 60 days after the issue of any shares of the capital stock of the corporation issued for consideration other than cash what part of the consideration for such shares shall be capital, the capital of the corporation in respect of such shares shall be an amount equal to the aggregate par value of such shares having a par value, plus the amount of the consideration for such shares without par value. The amount of the consideration so determined to be capital in respect of any shares without par value shall be the stated capital of such shares. The capital of the corporation may be increased from time to time by resolution of the board of directors directing that a portion of the net assets of the corporation in excess of the amount so determined to be capital be transferred to the capital account. The board of directors may direct that the portion of such net assets so transferred shall be treated as capital in respect of any shares of the corporation of any designated class or classes. The excess, if any, at any given time, of the net assets of the corporation over the amount so determined to be capital shall be surplus. Net assets means the amount by which total assets exceed total liabilities. Capital and surplus are not liabilities for this purpose. Notwithstanding anything in this section to the contrary, for purposes of this section and §§ 160 and 170 of this title, the capital of any nonstock corporation shall be deemed to be zero.

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§ 170(a)

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Dividends; payment; wasting asset corporations.

(a) The directors of every corporation, subject to any restrictions contained in its certificate of incorporation, may declare and pay dividends upon the shares of its capital stock either:

(1) Out of its surplus, as defined in and computed in accordance with §§ 154 and 244 of this title; or

(2) In case there shall be no such surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year.

If the capital of the corporation, computed in accordance with §§ 154 and 244 of this title, shall have been diminished by depreciation in the value of its property, or by losses, or otherwise, to an amount less than the aggregate amount of the capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets, the directors of such corporation shall not declare and pay out of such net profits any dividends upon any shares of any classes of its capital stock until the deficiency in the amount of capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets shall have been repaired. Nothing in this subsection shall invalidate or otherwise affect a note, debenture or other obligation of the corporation paid by it as a dividend on shares of its stock, or any payment made thereon, if at the time such note, debenture or obligation was delivered by the corporation, the corporation had either surplus or net profits as provided in (a)(1) or (2) of this section from which the dividend could lawfully have been paid.

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§ 172.

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Liability of directors and committee members as to dividends or stock redemption.

A member of the board of directors, or a member of any committee designated by the board of directors, shall be fully protected in relying in good faith upon the records of the corporation and upon such information, opinions, reports or statements presented to the corporation by any of its officers or employees, or committees of the board of directors, or by any other person as to matters the director reasonably believes are within such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the corporation, as to the value and amount of the assets, liabilities and/or net profits of the corporation or any other facts pertinent to the existence and amount of surplus or other funds from which dividends might properly be declared and paid, or with which the corporation's stock might properly be purchased or redeemed.

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§ 173.

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Declaration and payment of dividends.

No corporation shall pay dividends except in accordance with this chapter. Dividends may be paid in cash, in property, or in shares of the corporation's capital stock. If the dividend is to be paid in shares of the corporation's theretofore unissued capital stock the board of directors shall, by resolution, direct that there be designated as capital in respect of such shares an amount which is not less than the aggregate par value of par value shares being declared as a dividend and, in the case of shares without par value being declared as a dividend, such amount as shall be determined by the board of directors. No such designation as capital shall be necessary if shares are being distributed by a corporation pursuant to a split-up or division of its stock rather than as payment of a dividend declared payable in stock of the corporation.

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§ 174.

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Liability of directors for unlawful payment of dividend or unlawful stock purchase or redemption; exoneration from liability; contribution among directors; subrogation.

(a) In case of any wilful or negligent violation of § 160 or § 173 of this title, the directors under whose administration the same may happen shall be jointly and severally liable, at any time within 6 years after paying such unlawful dividend or after such unlawful stock purchase or redemption, to the corporation, and to its creditors in the event of its dissolution or insolvency, to the full amount of the dividend unlawfully paid, or to the full amount unlawfully paid for the purchase or redemption of the corporation's stock, with interest from the time such liability accrued. Any director who may have been absent when the same was done, or who may have dissented from the act or resolution by which the same was done, may be exonerated from such liability by causing his or her dissent to be entered on the books containing the minutes of the proceedings of the directors at the time the same was done, or immediately after such director has notice of the same.

(b) Any director against whom a claim is successfully asserted under this section shall be entitled to contribution from the other directors who voted for or concurred in the unlawful dividend, stock purchase or stock redemption.

(c) Any director against whom a claim is successfully asserted under this section shall be entitled, to the extent of the amount paid by such director as a result of such claim, to be subrogated to the rights of the corporation against stockholders who received the dividend on, or assets for the sale or redemption of, their stock with knowledge of facts indicating that such dividend, stock purchase or redemption was unlawful under this chapter, in proportion to the amounts received by such stockholders respectively.

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New York Business Corporation - Article 5 - § 501(a)

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Authorized shares.

(a) Every corporation shall have power to create and issue the number
of shares stated in its certificate of incorporation. Such shares may be
all of one class or may be divided into two or more classes. Each class
shall consist of either shares with par value or shares without par
value, having such designation and such relative voting, dividend,
liquidation and other rights, preferences and limitations, consistent
with this chapter, as shall be stated in the certificate of
incorporation. The certificate of incorporation may deny, limit or
otherwise define the voting rights and may limit or otherwise define the
dividend or liquidation rights of shares of any class, but no such
denial, limitation or definition of voting rights shall be effective
unless at the time one or more classes of outstanding shares or bonds,
singly or in the aggregate, are entitled to full voting rights, and no
such limitation or definition of dividend or liquidation rights shall be
effective unless at the time one or more classes of outstanding shares,
singly or in the aggregate, are entitled to unlimited dividend and
liquidation rights.

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New York Business Corporation - Article 5 - § 504

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Consideration and payment for shares.
(a) Consideration for the issue of shares shall consist of money or
other property, tangible or intangible; labor or services actually
received by or performed for the corporation or for its benefit or in
its formation or reorganization; a binding obligation to pay the
purchase price or the subscription price in cash or other property; a
binding obligation to perform services having an agreed value; or a
combination thereof. In the absence of fraud in the transaction, the
judgment of the board or shareholders, as the case may be, as to the
value of the consideration received for shares shall be conclusive.
(c) Shares with par value may be issued for such consideration, not
less than the par value thereof, as is fixed from time to time by the
board.
(d) Shares without par value may be issued for such consideration as
is fixed from time to time by the board unless the certificate of
incorporation reserves to the shareholders the right to fix the
consideration. If such right is reserved as to any shares, a vote of
the shareholders shall either fix the consideration to be received for
the shares or authorize the board to fix such consideration.
(e) Treasury shares may be disposed of by a corporation on such terms
and conditions as are fixed from time to time by the board.
(f) Upon distribution of authorized but unissued shares to
shareholders, that part of the surplus of a corporation which is
concurrently transferred to stated capital shall be the consideration
for the issue of such shares.
(g) In the event of a conversion of bonds or shares into shares, or in
the event of an exchange of bonds or shares for shares, with or without
par value, the consideration for the shares so issued in exchange or
conversion shall be the sum of (1) either the principal sum of, and
accrued interest on, the bonds so exchanged or converted, or the stated
capital then represented by the shares so exchanged or converted, plus
(2) any additional consideration paid to the corporation for the new
shares, plus (3) any stated capital not theretofore allocated to any
designated class or series which is thereupon allocated to the new
shares, plus (4) any surplus thereupon transferred to stated capital and
allocated to the new shares.
(h) Certificates for shares may not be issued until the amount of the
consideration therefor determined to be stated capital pursuant to
section 506 (Determination of stated capital) has been paid in the form
of cash, services rendered, personal or real property or a combination
thereof and consideration for the balance (if any) complying with
paragraph (a) of this section has been provided, except as provided in
paragraphs (e) and (f) of section 505 (Rights and options to purchase
shares; issue of rights and options to directors, officers and
employees).
(i) When the consideration for shares has been provided in compliance
with paragraph (h) of this section, the subscriber shall be entitled to
all the rights and privileges of a holder of such shares and to a
certificate representing his shares, and such shares shall be fully paid
and nonassessable.
(j) Notwithstanding that such shares may be fully paid and
nonassessable, the corporation may place in escrow shares issued for a
binding obligation to pay cash or other property or to perform future
services, or make other arrangements to restrict the transfer of the
shares, and may credit distributions in respect of the shares against
the obligation, until the obligation is performed. If the obligation is
not performed in whole or in part, the corporation may pursue such

remedies as are provided in the instrument evidencing the obligation or
a related agreement or under law.

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New York Business Corporation - Article 5 - § 506

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§ 506. Determination of stated capital.
(a) Upon issue by a corporation of shares with a par value, the
consideration received therefor shall constitute stated capital to the
extent of the par value of such shares.
(b) Upon issue by a corporation of shares without par value, the
entire consideration received therefor shall constitute stated capital
unless the board within a period of sixty days after issue allocates to
surplus a portion, but not all, of the consideration received for such
shares. No such allocation shall be made of any portion of the
consideration received for shares without par value having a preference
in the assets of the corporation upon involuntary liquidation except all
or part of the amount, if any, of such consideration in excess of such
preference, nor shall such allocation be made of any portion of the
consideration for the issue of shares without par value which is fixed
by the shareholders pursuant to a right reserved in the certificate of
incorporation, unless such allocation is authorized by vote of the
shareholders.
(c) The stated capital of a corporation may be increased from time to
time by resolution of the board transferring all or part of the surplus
of the corporation to stated capital. The board may direct that the
amount so transferred shall be stated capital in respect of any
designated class or series of shares.

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New York Business Corporation - Article 5 - § 510

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Dividends or other distributions in cash or property.
(a) A corporation may declare and pay dividends or make other
distributions in cash or its bonds or its property, including the shares
or bonds of other corporations, on its outstanding shares, except when
currently the corporation is insolvent or would thereby be made
insolvent, or when the declaration, payment or distribution would be
contrary to any restrictions contained in the certificate of
incorporation.
(b) Dividends may be declared or paid and other distributions may be
made either (1) out of surplus, so that the net assets of the
corporation remaining after such declaration, payment or distribution
shall at least equal the amount of its stated capital, or (2) in case
there shall be no such surplus, out of its net profits for the fiscal
year in which the dividend is declared and/or the preceding fiscal year.
If the capital of the corporation shall have been diminished by
depreciation in the value of its property or by losses or otherwise to
an amount less than the aggregate amount of the stated capital
represented by the issued and outstanding shares of all classes having a
preference upon the distribution of assets, the directors of such
corporation shall not declare and pay out of such net profits any
dividends upon any shares until the deficiency in the amount of stated
capital represented by the issued and outstanding shares of all classes
having a preference upon the distribution of assets shall have been
repaired. A corporation engaged in the exploitation of natural resources
or other wasting assets, including patents, or formed primarily for the
liquidation of specific assets, may declare and pay dividends or make
other distributions in excess of its surplus, computed after taking due
account of depletion and amortization, to the extent that the cost of
the wasting or specific assets has been recovered by depletion reserves,
amortization or sale, if the net assets remaining after such dividends
or distributions are sufficient to cover the liquidation preferences of
shares having such preferences in involuntary liquidation.

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N.Y. Business Corporation Law 630

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Liability of shareholders for wages due to laborers, servants or employees.

(a) The ten largest shareholders, as determined by the fair value of their beneficial interest as of the beginning of the period during which the unpaid services referred to in this section are performed, of every corporation (other than an investment company registered as such under an act of congress entitled "Investment Company Act of 1940"), no shares of which are listed on a national securities exchange or regularly quoted in an over-the-counter market by one or more members of a national or an affiliated securities association, shall jointly and severally be personally liable for all debts, wages or salaries due and owing to any of its laborers, servants or employees other than contractors, for services performed by them for such corporation. Before such laborer, servant or employee shall charge such shareholder for such services, he shall give notice in writing to such shareholder that he intends to hold him liable under this section. Such notice shall be given within one hundred and eighty days after termination of such services, except that if, within such period, the laborer, servant or employee demands an examination of the record of shareholders under paragraph (b) of section 624 (Books and records; right of inspection, prima facie evidence), such notice may be given within sixty days after he has been given the opportunity to examine the record of shareholders. An action to enforce such liability shall be commenced within ninety days after the return of an execution unsatisfied against the corporation upon a judgment recovered against it for such services. (b) For the purposes of this section, wages or salaries shall mean all compensation and benefits payable by an employer to or for the account of the employee for personal services rendered by such employee. These shall specifically include but not be limited to salaries, overtime, vacation, holiday and severance pay; employer contributions to or payments of insurance or welfare benefits; employer contributions to pension or annuity funds; and any other moneys properly due or payable for services rendered by such employee. (c) A shareholder who has paid more than his pro rata share under this section shall be entitled to contribution pro rata from the other shareholders liable under this section with respect to the excess so paid, over and above his pro rata share, and may sue them jointly or severally or any number of them to recover the amount due from them. Such recovery may be had in a separate action. As used in this paragraph, "pro rata" means in proportion to beneficial share interest. Before a shareholder may claim contribution from other shareholders under this paragraph, he shall, unless they have been given notice by a laborer, servant or employee under paragraph (a), give them notice in writing that he intends to hold them so liable to him. Such notice shall be given by him within twenty days after the date that notice was given to him by a laborer, servant or employee under paragraph (a).

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New York Business Corporation - Article 7 - § 719

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Liability of directors in certain cases.
(a) Directors of a corporation who vote for or concur in any of the
following corporate actions shall be jointly and severally liable to the
corporation for the benefit of its creditors or shareholders, to the
extent of any injury suffered by such persons, respectively, as a result
of such action:
(1) The declaration of any dividend or other distribution to the
extent that it is contrary to the provisions of paragraphs (a) and (b)
of section 510 (Dividends or other distributions in cash or property).
(2) The purchase of the shares of the corporation to the extent that
it is contrary to the provisions of section 513 (Purchase or redemption
by a corporation of its own shares).
(3) The distribution of assets to shareholders after dissolution of
the corporation without paying or adequately providing for all known
liabilities of the corporation, excluding any claims not filed by
creditors within the time limit set in a notice given to creditors under
articles 10 (Non-judicial dissolution) or 11 (Judicial dissolution).
(4) The making of any loan contrary to section 714 (Loans to
directors).
(b) A director who is present at a meeting of the board, or any
committee thereof, when action specified in paragraph (a) is taken shall
be presumed to have concurred in the action unless his dissent thereto
shall be entered in the minutes of the meeting, or unless he shall
submit his written dissent to the person acting as the secretary of the
meeting before the adjournment thereof, or shall deliver or send by
registered mail such dissent to the secretary of the corporation
promptly after the adjournment of the meeting. Such right to dissent
shall not apply to a director who voted in favor of such action. A
director who is absent from a meeting of the board, or any committee
thereof, when such action is taken shall be presumed to have concurred
in the action unless he shall deliver or send by registered mail his
dissent thereto to the secretary of the corporation or shall cause such
dissent to be filed with the minutes of the proceedings of the board or
committee within a reasonable time after learning of such action.
(c) Any director against whom a claim is successfully asserted under
this section shall be entitled to contribution from the other directors
who voted for or concurred in the action upon which the claim is
asserted.
(d) Directors against whom a claim is successfully asserted under this
section shall be entitled, to the extent of the amounts paid by them to
the corporation as a result of such claims:
(1) Upon payment to the corporation of any amount of an improper
dividend or distribution, to be subrogated to the rights of the
corporation against shareholders who received such dividend or
distribution with knowledge of facts indicating that it was not
authorized by section 510, in proportion to the amounts received by them
respectively.
(2) Upon payment to the corporation of any amount of the purchase
price of an improper purchase of shares, to have the corporation rescind
such purchase of shares and recover for their benefit, but at their
expense, the amount of such purchase price from any seller who sold such
shares with knowledge of facts indicating that such purchase of shares
by the corporation was not authorized by section 513.
(3) Upon payment to the corporation of the claim of any creditor by
reason of a violation of subparagraph (a) (3), to be subrogated to the
rights of the corporation against shareholders who received an improper
distribution of assets.

(4) Upon payment to the corporation of the amount of any loan made
contrary to section 714, to be subrogated to the rights of the
corporation against a director who received the improper loan.
(e) A director shall not be liable under this section if, in the
circumstances, he performed his duty to the corporation under paragraph
(a) of section 717.
(f) This section shall not affect any liability otherwise imposed by
law upon any director.