1 © copyrright doug hillman 2000 corporations: paid-in capital
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1© Copyrright Doug Hillman 2000
Corporations: Paid-in Capital
2© Copyrright Doug Hillman 2000
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© Copyrright Doug Hillman 2000
Organization of a Corporation
Stockholders Board of Directors Management
4© Copyrright Doug Hillman 2000
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© Copyrright Doug Hillman 2000
Advantages of Incorporation
Ability to generate capital investment Ease of transfer of ownership Continuity of life Limited liability Professional management
6© Copyrright Doug Hillman 2000
Disadvantages of Incorporation
Cost of incorporation Increased regulation Double taxation Separation of ownership and
management functions
7© Copyrright Doug Hillman 2000
Overview of Stockholders’ Equity
Paid-in capital
› Stock - par
› Excess over par or stated value
› Donations Retained earnings
› Undistributed earnings from operations
8© Copyrright Doug Hillman 2000
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© Copyrright Doug Hillman 2000
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© Copyrright Doug Hillman 2000
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© Copyrright Doug Hillman 2000
Classes of Stock
Common stock
› Residual class of ownership
› Controlling owners
› Unlimited dividends Preferred stock
› Receive dividends before common
› Receive liquidation before common
12© Copyrright Doug Hillman 2000
Preferred Stock
Stated dividend rate
› Percentage of par
› Dollar amount per share Cumulative
› Undeclared dividends accumulate
› Unpaid dividends are dividends in arrears
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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© Copyrright Doug Hillman 2000
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© 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 issued 6,000
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,
common 50,000
Paid-in capital-donated land 14,000
Total additional paid-in capital $84,000
Total paid-in capital $98,000
17© Copyrright Doug Hillman 2000
Analyzing Information
Total number of shares authorized Total number of shares issued Total number of shares outstanding Total market value of shares
outstanding
