Corporations: Paid-in Capital

1. Corporations: Paid-in Capital

2. Corporation • A group of persons authorized to act as a separate legal entity • Same privileges and responsibilities as an individual • Enter into contracts • Sue or be sued • Own, buy, and sell property

3. Organization of a Corporation • Stockholders • Board of Directors • Management

4. Stockholders’ Right • Vote at stockholder’s meetings • Sell or dispose of shares of stock • Participate in corporate profits by receiving dividends when declared • Maintain one’s percentage ownership (preemptive right) • Participate in distribution of assets on liquidation

5. Advantages of Incorporation • Ability to generate capital investment • Ease of transfer of ownership • Continuity of life • Limited liability • Professional management

6. Disadvantages of Incorporation • Cost of incorporation • Increased regulation • Double taxation • Separation of ownership and management functions

7. Overview of Stockholders’ Equity • Paid-in capital • Stock - par • Excess over par or stated value • Donations • Retained earnings • Undistributed earnings from operations

8. Stock Terminology • Authorized • Maximum number of shares allowed by charter • Issued • Number of shares transferred to stockholders • Outstanding • Number of shares currently in hands of stockholders

9. Stock Terminology • Par value • Dollar amount assigned to each share of stock by charter • Stated value • Dollar amount assigned to each share of stock by board of directors • No-par value • Stock without a par value

10. Legal Capital • Minimum amount of capital that must be left in the corporation by actions of the board of directors for protection of the creditors • Par-value - par value of issued shares • Stated value - stated value of issued shares • No-par - total proceeds of stock

11. Classes of Stock • Common stock • Residual class of ownership • Controlling owners • Unlimited dividends • Preferred stock • Receive dividends before common • Receive liquidation before common

12. Preferred Stock • Stated dividend rate • Percentage of par • Dollar amount per share • Cumulative • Undeclared dividends accumulate • Unpaid dividends are dividends in arrears

13. Issuance of Stock • Securities Act of 1933 requires stock issued in interstate markets to be registered with the SEC • Announced in tombstone ad • Advertising restricted to a book of facts called prospectus

14. Issuance of Stock • Proceeds increase assets • Par or stated value increases stock account • Proceeds in addition to par or stated value recorded in Paid-in Capital-Excess Over Par(Stated) Value, class of stock

15. Disclosure of Paid-in Capital Stock Preferred stock, 10%, $10 par, 1,000 shares authorized, 800 shares issued $ 8,000 Common stock, $1 par, 10,000 shares authorized, 6,000 shares issued 6,000 Total stock $14,000

16. Disclosure of Paid-in Capital Additional paid-in capital Paid-in capital-excess over par, preferred $20,000 Paid-in capital-excess over par, common 50,000 Paid-in capital-donated land 14,000 Total additional paid-in capital $84,000 Total paid-in capital $98,000

17. Analyzing Information • Total number of shares authorized • Total number of shares issued • Total number of shares outstanding • Total market value of shares outstanding