1. Stockholders’ Equity Paid-In Capital
Unit 11
Stockholders’ Equity
Paid-In Capital

2. Corporations Advantages Disadvantages
Stockholders are not personally liable
Transferability of ownership
Professional management
Continuity of existence
Double taxation
Great regulation
Cost of formation
Separation of ownership and management

3. Corporations Publically Held Privately Held
Corporations that sell shares of stock (ownership) on the open market
IE: AT&T, Petsmart, Rite Aid, Paychex
Corporations that (closely held) do NOT sell shares on the open market and typically are large family businesses (
IE: Wegmans, Hallmark, Ingram Industries, MARS, Enterprise Rent-A-Car, Hobby Lobby

4. Rights of Stockholders
Voting rights (Directors and key company issues)
Participate in any dividends
If company is liquidates, to receive a portion of the company’s assets

5. Types of Stock Common Preferred Voting Rights Rights to dividends
Residual claim if company is liquidated
1st rights to dividends
Cumulative dividends rights
1st rights to assets if company is liquidated
No voting rights

6. Cumulative Preferred Stock
Noncumulative
Dividends in arrears (dividends that have NOT been paid out) must be paid before dividends may be paid on common stock.
Undeclared dividends from current and prior years do not have to be paid in future years.

7. Capital Paid-In Capital Earned Capital
Money collected from the sale of stock.
Par Value (arbitrary amount assigned to each share) of stock is typically very small
Issuance of stock above par value represents ADDITIONAL PAID-IN CAPITAL (APIC)
Money earned from business operations (Retained Earnings).

8. Shares Shares Authorized Shares Issued and Outstanding
TOTAL amount of shares the company can legally issued on the open market
Amount of shares presently held by shareholders

9. Page 8 Stockholders’ Equity WS1
Common Stock: Authorized and issued 10,000 shares of $10 par value stock
$100,000
Additional Paid-In Capital
30,000
Total Paid-In Capital
130,000
Retained Earnings
75,000
Total Stockholder's Equity
205,000
Retained earnings refers to the portion of net income of a corporation that is retained by the corporation rather than distributed to shareholders
Practice:
Page 8 Stockholders’ Equity WS1