1 © Copyrright Doug Hillman 2000 Corporations: Paid-in Capital
2 © Copyrright Doug Hillman 2000 Corporation l A group of persons authorized to act as a separate legal entity l Same privileges and responsibilities as an individual ›Enter into contracts ›Sue or be sued ›Own, buy, and sell property
3 © Copyrright Doug Hillman 2000 Organization of a Corporation l Stockholders l Board of Directors l Management
4 © Copyrright Doug Hillman 2000 Stockholders’ Right l Vote at stockholder’s meetings l Sell or dispose of shares of stock l Participate in corporate profits by receiving dividends when declared l Maintain one’s percentage ownership (preemptive right) l Participate in distribution of assets on liquidation
5 © Copyrright Doug Hillman 2000 Advantages of Incorporation l Ability to generate capital investment l Ease of transfer of ownership l Continuity of life l Limited liability l Professional management
6 © Copyrright Doug Hillman 2000 Disadvantages of Incorporation l Cost of incorporation l Increased regulation l Double taxation l Separation of ownership and management functions
7 © Copyrright Doug Hillman 2000 Overview of Stockholders’ Equity l Paid-in capital ›Stock - par ›Excess over par or stated value ›Donations l Retained earnings ›Undistributed earnings from operations
8 © Copyrright Doug Hillman 2000 Stock Terminology l Authorized ›Maximum number of shares allowed by charter l Issued ›Number of shares transferred to stockholders l Outstanding ›Number of shares currently in hands of stockholders
9 © Copyrright Doug Hillman 2000 Stock Terminology l Par value ›Dollar amount assigned to each share of stock by charter l Stated value ›Dollar amount assigned to each share of stock by board of directors l No-par value ›Stock without a par value
10 © Copyrright Doug Hillman 2000 Legal Capital l Minimum amount of capital that must be left in the corporation by actions of the board of directors for protection of the creditors l Par-value - par value of issued shares l Stated value - stated value of issued shares l No-par - total proceeds of stock
11 © Copyrright Doug Hillman 2000 Classes of Stock l Common stock ›Residual class of ownership ›Controlling owners ›Unlimited dividends l Preferred stock ›Receive dividends before common ›Receive liquidation before common
12 © Copyrright Doug Hillman 2000 Preferred Stock l Stated dividend rate ›Percentage of par ›Dollar amount per share l Cumulative ›Undeclared dividends accumulate ›Unpaid dividends are dividends in arrears
13 © Copyrright Doug Hillman 2000 Issuance of Stock l Securities Act of 1933 requires stock issued in interstate markets to be registered with the SEC l Announced in tombstone ad l Advertising restricted to a book of facts called prospectus
14 © Copyrright Doug Hillman 2000 Issuance of Stock l Proceeds increase assets l Par or stated value increases stock account l Proceeds in addition to par or stated value recorded in Paid-in Capital-Excess Over Par(Stated) Value, class of stock
15 © Copyrright Doug Hillman 2000 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 issued6,000 Total stock$14,000
16 © Copyrright Doug Hillman 2000 Disclosure of Paid-in Capital Additional paid-in capital Paid-in capital-excess over par, preferred$20,000 Paid-in capital-excess over par, common50,000 Paid-in capital-donated land14,000 Total additional paid-in capital$84,000 Total paid-in capital$98,000
17 © Copyrright Doug Hillman 2000 Analyzing Information l Total number of shares authorized l Total number of shares issued l Total number of shares outstanding l Total market value of shares outstanding