Chapter 11 Part 1 Flashcards

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1
Q

private (closed) corporations

A

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

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2
Q

Shareholders are responsible for

A

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

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3
Q

inside directors

A

senior executives, such as the president, also serve on the board of directors

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4
Q

Outside directors

A

directors who are not otherwise affiliated with the corporation

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5
Q

There are two basic methods used by corporations to raise money

A

debt financing (loans) and equity financing (stock ownership)

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6
Q

A company that issues stock is using

A

equity financing to raise capital

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7
Q

The total amount of stock that a corporation may issue is

A

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

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8
Q

The rights of shareholders are specified in the corporation’s

A

charter and bylaws

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9
Q

The shareholder has the right to receive

A

“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”

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10
Q

The transfer agent keeps

A

a list of all registered stockholders and is also responsible for canceling old stock certificates and issuing new ones when the shares arc transferred

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11
Q

The registrar

A

makes certain that the company does not issue more shares than its charter authorizes

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12
Q

The majority of clients choose to have their securities held in

A

street name at their brokerage firm. In a modern trading environment, these positions are adjusted electronically through the Depository Trust & Clearing Corporation (DTCC)

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13
Q

Stockholders have the right to

A

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

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14
Q

Stockholders have the right to

A

inspect certain books and records of the company, including the stockholders’ list and the minutes of stockholders’ meetings

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15
Q

basic unit of corporate ownership

A

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

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16
Q

Only common stockholders have

A

voting rights

17
Q

In statutory voting, shareholders determine the number of votes they have by

A

multiplying the number of shares they own by the number of directors being elected. However, the maximum number of votes they may cast for each director is limited to the number of actual shares they own.

18
Q

In cumulative voting, shareholders determine the number of votes in the same way as statutory and may cast

A

all the votes any way they want. They may cast all their votes for one individual director or divide them among various directors

19
Q

Common shareholders may also have

A

preemptive rights. This means that if the corporation issues additional stock, the current shareholders have the right to additional shares before they are offered to the public. This way, the present shareholders can maintain their proportionate ownership interest in the company

20
Q

rights offering

A

The process of offering preemptive rights lo common stockholders is called a rights offering. Each common stockholder receives one right for each share owned. The number of rights needed to buy one share of the new stock, the purchase price, and the period for exercising the rights vary. Usually the offer is good for a limited period (less than two months) and the purchase price (subscription price) is below the current market value of the stock