Chapter 11 Part 1 Flashcards
private (closed) corporations
a limited group of people often owns all the stock, as well as serving as tbe corporation’s directors and managers. no public market for the company’s stock
Shareholders are responsible for
electing a board of directors whose duty is to oversee the operations of the company. The board, in turn, appoints the company’s senior managers who manage the company
inside directors
senior executives, such as the president, also serve on the board of directors
Outside directors
directors who are not otherwise affiliated with the corporation
There are two basic methods used by corporations to raise money
debt financing (loans) and equity financing (stock ownership)
A company that issues stock is using
equity financing to raise capital
The total amount of stock that a corporation may issue is
authorized in its corporate charter, which is its governing docurnent. the company may not issue more stock than is authorized without the approval of the majority of the stockholders
The rights of shareholders are specified in the corporation’s
charter and bylaws
The shareholder has the right to receive
“one or more certificates as proof of
ownership. the certificate states the name or the corporation, the owner’s name, and the number of shares the stockholder owns. It also shows the names of the transfer agent and registrar and must he signed by an authorized corporate officer”
The transfer agent keeps
a list of all registered stockholders and is also responsible for canceling old stock certificates and issuing new ones when the shares arc transferred
The registrar
makes certain that the company does not issue more shares than its charter authorizes
The majority of clients choose to have their securities held in
street name at their brokerage firm. In a modern trading environment, these positions are adjusted electronically through the Depository Trust & Clearing Corporation (DTCC)
Stockholders have the right to
transfer shares freely. They may sell them, give them away, or bequeath the shares to heirs. This right may be limited in the case of stockholders who are also employees of the company and acquired stock directly from the company as part of their compensation
Stockholders have the right to
inspect certain books and records of the company, including the stockholders’ list and the minutes of stockholders’ meetings
basic unit of corporate ownership
Common stock. lt is the most widely issued and the first type of stock that a corporation issues. For bookkeeping purposes, common stock is usually issued with a par value that is a nominal amount used for the company’s financial statement. There is no relationship between the par value of an equity security and its market value