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CHAPTER 12. Chapter 12Mugan-Akman 20072 Forms of Business Organizations Sole Proprietorship-natural person merchant General Partnership Limited Partnership.

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Presentation on theme: "CHAPTER 12. Chapter 12Mugan-Akman 20072 Forms of Business Organizations Sole Proprietorship-natural person merchant General Partnership Limited Partnership."— Presentation transcript:

1 CHAPTER 12

2 Chapter 12Mugan-Akman 20072 Forms of Business Organizations Sole Proprietorship-natural person merchant General Partnership Limited Partnership and Limited Partnership Divided into Shares Limited Liability Corporation Corporation

3 Chapter 12Mugan-Akman 20073 Corporations  limited liability of shareholders  ownership transferred easily-CAPITAL IS DIVIDED INTO SHARES private and publicly traded to be traded publicly they should get permission from Capital Markets Board  transition from a privately held corporation to a publicly traded one is called going public, and this first sale of stock to the public is called an initial public offering, or IPO

4 Chapter 12Mugan-Akman 20074 Shareholders/ General Assembly Board of Directors Chairman of the Board CEO / president Vice President - Sales Vice President - Manufacturing Vice President – Accounting and Finance Vice President - Personnel Secretary Controller (accounting)Treasurer (finance) Represents the corporation Authority Structure

5 Chapter 12Mugan-Akman 20075 Terms Related with Capital of Corporations Share Capital (Registered Capital) Unpaid Capital (Capital Commitments) Paid-in Capital Authorized Capital Issued Capital Treasury Stock Outstanding Capital Additional Paid-In Capital (share premium)

6 Chapter 12Mugan-Akman 20076

7 Chapter 12Mugan-Akman 20077 Capital Transactions Share Capital Increases –In cash –In-kind –Issuing free shares Conversion of bonds Stock dividends Stock Split Treasury Stocks

8 Chapter 12Mugan-Akman 20078 Convertible Bonds debt securities that may be converted under preset conditions to common stock of the issuer at the option of the bearer (investor) conversion methods: –Market price of the stock at the time of conversion (market value approach) –Book value of the bond being converted (book value approach)

9 Chapter 12Mugan-Akman 20079 Stock Dividends Distribution of stocks proportionately from retained earnings to the shareholders Purposes Satisfy the shareholders without cash outflows Increase the demand for the stocks in the market Valuation –less than 20-25% of the capital are valued at the market value of the stock and are met from the retained earnings –large stock dividends are declared, for example more than 20-25%, the par value is used to record the transaction

10 Chapter 12Mugan-Akman 200710 Balance Sheet Effects-Stock Dividends Assume management of ZAM Corporation decided to distribute 5% stock dividends from 200.000 shares of TL1 par value each on 11 April 2007. The market value of ZAM Corporation shares was TL1,50 on 11 April.

11 Chapter 12Mugan-Akman 200711 Balance Sheet Effects-Stock Dividends Assume management of ZAM Corporation decided to distribute 5% stock dividends from 200.000 shares of TL1 par value each on 11 April 2007. The market value of ZAM Corporation shares was TL1,50 on 11 April. increase by the difference between par and price- TL 5.000 increase by par decrease by 15,000

12 Chapter 12Mugan-Akman 200712 Stock Split Issuance of additional stocks by decreasing the par value of the stock proportionately Stock splits increase the demand for the stocks in the market by decreasing the market price of the stock e.g. effect of the 2 for 1 stock split made by Better-Off

13 Chapter 12Mugan-Akman 200713 Stock Split Issuance of additional stocks by decreasing the par value of the stock proportionately Stock splits increase the demand for the stocks in the market by decreasing the market price of the stock e.g. effect of the 2 for 1 stock split made by Better-Off

14 Chapter 12Mugan-Akman 200714 Treasury Stocks Why? to improve the market price of the stock to have available stock to be used in the stock option plans to have available stocks of planned mergers and acquisitions to prevent a takeover to improve Earnings per Share do not have voting, or dividend rights do not have a right in the liquidation of the company Initially recorded at cost (contra equity account) Recorded at market value at re-issuance Any gains and losses are reported at the shareholders’ equity

15 Chapter 12Mugan-Akman 200715 Profit Appropriation 1. 1st Legal Reserves: 5% of net income before taxes (until it reaches 20% of paid-in capital) 2. 1st dividend to shareholders: 5% of paid-in capital 3. Other dividends: Dividends to shareholders other than 1st dividends; dividends to board of directors and employees 4. 2nd Legal Reserves: 10% of dividends declared, excluding 5% 1st dividends 5. Special Reserves: Appropriation of net income as a special reserve as defined in the Articles of Association 6. Retained Earnings : Any amount remaining after the above appropriations

16 Chapter 12Mugan-Akman 200716 Retained Earnings-Profit Appropriation Net Income After Taxes –Less: Legal Reserves (first) –Less: Dividends 1 st dividends to shareholders 2 nd dividends to shareholders Dividends to board of directors and employees –Less: Legal Reserves (second) –Retained Earnings

17 Chapter 12Mugan-Akman 200717 Statements of Changes in Equity Primary financial statement Summarize movements in shareholders’ equity from one accounting period to another

18 Chapter 12Mugan-Akman 200718 Illustration of the Statement of Changes in Equity During 2008, available for sale instruments of the company had a fair value increase of TL 5.096, and realized TL 1.100 from sale of such instruments. In April 2008, ZAM Corporation decided to increase the share capital from TL 200.000. The new 20.000 shares with a par value of TL10 were sold at TL 18,75 each. Legal reserves from 2007 income was 9.393 whereas dividends declared were 2.807. Net income for 2008 is TL 54.600. ZAM Corporation Partial Balance Sheet 31 December 20082007 Shareholders’ Equity Paid-in Capital TL 400.000 TL 200.000 Share Capital 400.000 200.000 Unpaid Capital-- Additional Paid-in Capital 525.088 350.088 Legal Reserves12.733 3.340 Other Reserves 34.945 30.949 Retained Earnings 102.400 60.000 Shareholders’ Equity TL 1.075.166 TL 644.377

19 Chapter 12Mugan-Akman 200719 ZAM Corporation Statement of Changes in Equity - For The Year 2008 -TL

20 Chapter 12Mugan-Akman 200720

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