Chapter Five Investments – How corporations raise capital

How do corporations raise capital?  One way to raise capital in a corporation is through issuing securities  Three main types of securities that corporations offer to the public:  Common shares  Preferred shares  Bonds  Each of these three types is different from others

Common Shares  A security that represents ownership in a corporation  Common share owners have a right to vote, and the right to profit shares  Voting rights are based on matters such as company objectives  Recovering your investments can be done by selling your shares  No certainty that you will receive a return on your investment; it all depends on the profitability of the corporation  If the corporation comes to an end, you will receive your share of the assets only after all other financial obligations have been met

Preferred Shares  Issued by a corporation that shows ownership of the company  Preference over the common share in the payment of dividends, and, in the event of the corporation’s bankruptcy  Preferred shareholders usually don’t have a right to vote in the affairs of the corporation  It is a more secure stock than common shares because:  Promised a fixed return or dividend on your investment, but the dividend is not owed until declared by the directors of the corporation  Should the company be terminated, your claim must be paid before the claim of the common shareholder

Bonds  Is a written promise to pay a stated sum of money at some time in the future; until that time, interested is paid on stated dates  This investment provides maximum security  As a bondholder, you are not a part-owner of the corporation; you are its creditor  The corporation must repay you the money it borrowed from you; until then, you are entitled to interest payments on your loan  If the company is terminated, the debt owed to you must be repaid before those of the common and preferred shareholders

An Investment Opportunity: Scenario  A relative has gifted you $2000 for your birthday. You are planning to invest money in your favourite business, Tire Man Corporation. Like some Canadian Corporations, Tire Man has three main types of securities that it has offered for sale to the general public: the common share, the preferred share and the bond  Discuss amongst your group members which investment you think would be the most ideal to invest in and state why

Group Activity – Fact Sheet Due: Friday, April 17 th  With your table groups, you will make a fact sheet that will entail the following:  You are the owner of a corporation. Your company issues all three types of securities (preferred, common, and bonds). Create a fact sheet for your company that informs potential investors about the types of securities your company has to offer.  In your fact sheet, include the following:  Name and company background (this can be very brief)  Brief summaries of each type of securities  Advantages and disadvantages of each security  Tip: Be creative, include pictures, and make it look professional. Check out how other companies are marketing this type of information to their potential investors