Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Business Associations - Fall 2022 (Dexter) > Corporations (Finance) > Flashcards

Corporations (Finance) Flashcards

1
Q

Corporations (Finance)

Capital Structure

A

A corporation’s capital structure refers to the particular mix of debt and equity that the business uses to finance its operations and plans for future growth.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Corporations (Finance)

Initial Capital:
Sources

A
  1. Contributions from Founders
  2. Issuing Stock/Securities Offerings
  3. Borrowing Money
    a. From Banks
    b. From the Public at Large (Capital Markets)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Corporations (Finance)

Authorized Stock

A

The maximum number of shares the company may issue, per the articles of incorporation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Corporations (Finance)

Issued Stock

A
  1. Shares that have been transferred to shareholders in exchange for consideration
    AND
  2. All treasury stock
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Corporations (Finance)

Outstanding Stock

A

Shares that have been issued to shareholders, not including treasury stock

Only Outstanding Shares are eligible to vote at shareholder meetings

Dividends are issued to holders of outstanding stock

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Corporations (Finance)

Shareholders

A

Investors who make an equity investment in a corporate that is represented by shares of stock

Shareholders hold authorized, issued, and outstanding shares

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Corporations (Finance)

Treasury Stock

A

Stock held by the corporation

Treasury stock is authorized and issued, but it is not outstanding

Corporations may reacquire/repurchase authorized, issued, and outstanding stocks, restoring them to the status of authorized, but not issued or outstanding.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Corporations (Finance)

Par Value Stock:
Effect of “No Par Value” Stated

A

If no par value is stated, the board can allocate to stated capital and capital surplus at its discretion

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Corporations (Finance)

Par Value Stock:
Stated Capital Account

A

The par value amount goes to the stated capital account

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Corporations (Finance)

Par Value Stock:
Capital Surplus Account

A

Any amount over the par value amount goes to the capital surplus account

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Corporations (Finance)

Par Value Stock:
Watered Down/Discount/Bonus Stock

A

Stock that is issued below par value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Corporations (Finance)

Common Stock:
Stockholder Rights

A

The default class of stock

  1. Voting Rights
  2. Distribution Rights
  3. Liquidation Rights
  4. Preemptive Rights (maybe)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Corporations (Finance)

Common Stock:
Stockholder Voting Rights

A

Common stock has full, unlimited voting rights for directors and for approving certain fundamental changes to the business

Typically one-stock-one-vote, but sometimes fractional

If there are different classes of stock, certain voting rights may be altered
Directors may be voted for using straight or cumulative voting

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Corporations (Finance)

Voting for Directors:
Straight Voting

A

Each stockholder is entitled to vote based on on-stock-one vote per each director position

May require a majority or plurality to win

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Corporations (Finance)

Voting for Directors:
Cumulative Voting

A

Each stockholder is entitled to vote based on the number of stocks held multiplied by the number of open director position

They may apply their votes to one or more open director positions

Only requires a plurality to win

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Corporations (Finance)

Common Stock:
Shareholder Distribution Rights

A

Common stockholders receive distributions based on their overall percentage of shares

17
Q

Corporations (Finance)

Common Stock:
Stockholder Liquidation Rights

A

Common stockholders are entitled to residual assets on liquidation only if and after the corporation has satisfied all other debts and obligations

Common stockholders are paid only if and after preferred stockholders liquidation rights have been satisfied

18
Q

Corporations (Finance)

Preferred Stock
Rights

A

Preferred stock has preference over common stock, meaning preferred stockholders are paid first upon distribution and/or liquidation

1. Voting Rights
2. Distribution Rights
a. Dividend Preferences
.
.
b. Cumulative v. Noncumulative Stock
.
Cumulative Stock is accumulated year over year when the corporation has not issued distributions
.
Noncumulative Stock does not accumulate, the preferred stockholder only recieves their preference when distributions are made
.
c. Participating v. Nonparticipating Stock
.
Participating Stock receives both the common stock distribution and the preferred stock distribution
.
Nonparticipating Stock only receives the preferred stock distribution
.
.
3. Liquidation Preference
4. Redemption Preference
5. Conversion Rights

19
Q

Corporations (Finance)

Preferred Stock:
Voting Rights

A

Dictated by the specific terms of the class of stock

Preferred stockholders may have special, limited, or no voting rights

20
Q

Corporations (Finance)

Preferred Stock:
Distribution Rights
Dividend Preference

A

Preferred stockholders are generally entitled to receive distributions before common stockholders

21
Q

Corporations (Finance)

Preferred Stock:
Types of Redemption Preferences

A
  1. Call/Callable Shares
  2. Put/Right of Redemption
22
Q

Corporations (Finance)

Preferred Stock:
Redemption Preferences
Call/Callable Shares

A

Stock is callable if the corporation has the authority to reacquire/callback all or a portion of the shares from the shareholders, at the board’s discretion

The amount to be paid is governed by the articles of incorporation

23
Q

Corporations (Finance)

Preferred Stock:
Redemption Preferences
Sinking Fund

A

To ensure sufficient funds to repurchase the redeemable preferred stock, the corporation usually establishes a separate account, called the sinking fund

The corporation deposits funds into the sinking fund overtime for redemption purposes.

The fund cannot be used for other purposes

24
Q

Corporations (Finance)

Preferred Stock:
Redemption Preferences
Put/Right of Redemption

A

A stockholder may have the right to compel the corporation to redeem/buy back their shares

Requirements
1. There must be sufficient funds in the sinking fund
2. It must be in accordance with the articles of incorporation

25
Q

Corporations (Finance)

Preferred Stock:
Conversion Rights

A

Preferred stockholders may have the right to convert their preferred stock into cash, indebtedness, or another class/series of shares at an agreed-on price ratio

If the right exists, the corporation must have an adequate number of authorized, unissued shares to allow preferred shareholders to exercise this right

Commonly coupled with anti-dilution provisions

26
Q

Corporations (Finance)

Debt Financing:
Benefits

Corporation, Shareholder, & Creditor Benefits

A

Corporation & Shareholder Benefits
1. Retain Ownership
2. Retain Enhanced Value

Creditor Benefits
1. Reliance
2. Preference over equity holders
3. If secured, ability to recover via specific collateral property

27
Q

Corporations (Finance)

Debt Financing:
Detriments

Corporation, Stockholder, & Creditor Detriments

A

Corporation & Shareholder Detriments
1. Burden of Regular Payments regardless of profits
a. Risk of Default
b. Risk of Acceleration
c. Ability/Inability to Cure
2. Unfavorable Terms
3. Possible Involuntary Bankruptcy Petitions by Creditors
4. Reduced Company Appeal to potential investors

Creditor Detriments
1. No Possibility of Enhanced Value Gains
2. Risk of Debtor Bankruptcy, even if the debt is secured

28
Q

Corporations (Finance)

Primary Types of Debt Financing

A
  1. Loans/Promissory Notes
  2. Bonds
  3. “Zero-Coupon” Bonds
  4. “Junk” Bonds
  5. Debenture
  6. Line of Credit
  7. Accounts Payable
29
Q

Corporations (Finance)

Debt Financing:
“Zero Coupon” Bond

A

A bond with zero interest payments due until the end of the term

30
Q

Corporations (Finance)

Debt Financing:
“Junk” Bond

A

A bond with a below investment grade credit rating

31
Q

Corporations (Finance)

Debt Financing:
Line of Credit

A

a preauthorized loan that the corporation can draw from on a variable basis and only pay interest when money is taken out

32
Q

Corporations (Finance)

Secured Transactions

A

A loan or credit transaction in which the lender acquires a security interest in collateral owned by the borrower

Secured transactions are secured at the moment of attachment and may be perfected

33
Q

Corporations (Finance)

Secured Transactions:
Attachment

A

Attachment occurs when:

  1. Value has been given,
  2. The debtor has rights in the collateral, and
  3. The creditor either:
    a. takes possession of the collateral, or
    b. obtains a security agreement
34
Q

Corporations (Finance)

Secured Transactions:
Perfection

A

Prefecting provides public notice to third parties that specific property is encumbered

Timing is critical, because it establishes priority

35
Q

Corporations (Finance)

Favorable Debt Enhancements

A
  1. Redemption Terms/Prepayment Penalties
  2. Convertability
  3. Priority
  4. Voting Rights
36
Q

Corporations (Finance)

Favorable Debt Enhancements:
Redemption Terms/Prepayment Penalties

A

Redemption Terms forbid the creditor from calling the debt security before maturity date

Prepayment Terms impose a penalty for the borrower paying off the debt before maturity

Business Associations - Fall 2022 (Dexter) (13 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions