Ch 11.1 Flashcards
what are characterisitcs of a corporation
- separate legal entity
- limited legal liability of shareholders
- transferabble ownership
- able to acquire capital
- continuous life
- corporate management
how is an org a separate legal entity
it can:
1. buy own and sell property
2. borrow money
3. enter into legally binding ocntracts
4. sue or be sued
5. pay own tax
how can limited liability no longer exist
if an org is smaller, and a bank asks for collateral of the shareholders property
how can an orgs ownership be transferred
sale of shares
are transferring shares limited in a public corp? private?
no restricts in public
private may have some regualtions
Whether public or private, the transfer of ownership rights between shareholders does not involve the corporation.
so a, l, and se UNCHANGED BY WHOHOLDS SHARES
Does company record JE for transaction between shareholders?
no! only when it issues/sells shares to new investors or repurchases shares from investors
how does an org have unlimited life
since sep legal ent, then continuance depends on the GOING CONERN!! not affeced by death or anything else
what is a typical corporate organizatioon chart
Shareholders
->
board of directors
-> ceo and president
-> c suite
->treasurer and controller under CFO
what are two ways canadian companies can incorporate
federally or provincially
disadvantages of a corporation
increased cost and complexity to follow govt reguations
increased reproting and disclosure requirements
what is the pros of having a corp
- sep legal ent
- limited liab
- ease of transfer ownership
- continuous life
- sep manage and ownership
- POTENTIAL FOR REDUCED INCOME TAX
what are the 3 rights of common shareholders
1) vote to elect the board of directors, and vote on actions that require approval like electing an auditor
2) share coroporates earnings through RECIEVING dividends
3) share in assets upon liquidiation
what does the shareholders right to share in assets upon liquidation mean
THIS IS A RESIDUAL CLAIM!!
IF A BUSINESS GOES OUT OF BUSINESS, LENDORS AND CREDITORS GET THE MONEY THEY ARE OWED
SHAREHODLERS WILL GET PROPORITONAL TO WHAT HEY DESERVE FROM WHAT IS REMIANING
What is the formaulf ro share capital
common shares+preferred shares
how does a company determine how much shares it is allowed to sell
this may either be limited or unliited, and it will be listed in articles of incorporation
Most companies in Canada have an unlimited amount of authorized shares.
Some companies will also authorize an unlimited number of preferred shares.
The authorization of share capital does not result in a journal entry. It is the issue (sale) of shares by the corporation that must be journalized
word
what is an initial public offering (IPO)
the first time a corporations shares are ofered for salae to the public
what are issued shares
shares that have been sold
after an IPO does the share price change?
yes! according to the interaction between buyers and sellers!!!
based on market forces
what does a share price typically follow
the trend of a companys NET INCOME, dividends, and future
+ external market ocnditions
market capitalization
-definition
-formula
measure of the fair value of a ocmpanys total equity
number of shares issued * share price
(at any date)
what is the difference between retained earnings and share capital
retained earning:
-can eitehr be distributed as dividends or retained for operations
The share capital of most types of shares issued islegal capital that cannot be distributed to shareholders unless the shares are returned to the corporation and cancelled. Most shares are commonly known as no par value shares, which simply means that the shares have no predetermined value. Rather, the amount received by the company when issuing shares is considered to be legal capital that must remain invested in the company to protect corporate creditors.
who approved declaring dividends
company board of dierctors
