Financing the Organization Flashcards
Common Stock.
Common stock is a security that represents ownership in a corporation. Holders of common stock exercise control by electing a board of directors and voting on corporate policy.
What priority in the ownership structure to common stockholders have?
Common stockholders have the lowest priority in the ownership structure (i.e., in the event of liquidation, common stockholders have rights to company assets only AFTER bond holders, preferred stockholders, and other debt holders have been paid in full.)
Preferred Stock.
Preferred stock is a security that represents ownership in a corporation. Preferred stock does NOT always have voting rights.
Shares of stock are preferred if their holders are…
- Entitled to receive payment of dividends BEFORE any payment of dividends to another class of stockholders (e.g., common stockholders); OR
- Entitled, in the event of liquidation or dissolution, to receive any payments or distributions BEFORE another class of stockholders (e.g., common stockholders).
What are authorized shares?
Authorized shares are the maximum number of shares that a corporation is legally permitted to issue under its articles of incorporation.
How can a corp increase authorized shares?
In order to increase the amount of authorized shares, the articles of incorporation must be amended with a majority vote from the directors and shareholders.
Outstanding shares are…
…the total number of shares issued by the corporation and held by the shareholders. Generally, each outstanding share is entitled to one vote (regardless of class), UNLESS otherwise provided in the articles of incorporation.
Treasury stock consists of shares that…
…a company issued and subsequently reacquired.
Shares that the corporation reacquired are NOT considered outstanding and CANNOT be counted in a shareholder vote
How may a corporation issue options for the purchases of its shares?
A corporation may issue options for the purchase of its shares on certain specified terms that are determined by the corporation’s board of directors (e.g., how the options are issued, the consideration required for issuance, etc.).
As to shares within the same class…
ALL shares within a class of stock MUST have identical rights and preferences UNLESS the shares within a class are divided into separate series.
A preemptive right is…
… a right of a current shareholder to purchase additional shares in the corporation before outsiders are permitted to do so in order to maintain their percentage of ownership in the corporation.
In most states, how does a corp create preemptive rights?
In most states, a corporation must “opt in” to create preemptive rights by expressly including such rights in the corporation’s articles of incorporation. However, in some states, preemptive rights are presumed to exist unless the corporation “opts out” by expressly barring such rights in the corporation’s articles of incorporation.
MOST STATES = CORP MUST OPT-IN IN AOI
SOME STATES = CORP MUST OPT-OUT IN AOI
Unless otherwise set forth in the articles, preemptive rights do NOT exist for…
- Preferred shares that CANNOT be converted to common stock;
- Shares sold for a consideration other than cash; OR
- Shares issued by majority shareholder vote to directors, officers, or employees.
WHO HAS THE DISCRETION TO PAY DIVIDENDS/DISTRIBUTIONS?
BOARD OF DIRECTORS.
Unless otherwise set forth in the articles of incorporation, a shareholder does NOT have any right to receive distributions (whether in the form of dividends or otherwise) from the corporation. Dividends and distributions are generally paid to shareholders at the full discretion of the board of directors.
