Lesson 10

Question 1

Preferred Stock

Answer 1

Preferred stock has some sort of preference over common stock, which must be spelled out in the corporation’s articles.

Question 2

Authorized Stock

Answer 2

Authorized Stock is the number of shares a corporation may issue. The “authorized stock” figure appears in the corporation’s articles of incorporation.

Question 3

Par Value

Answer 3

Par value is a completely arbitrary assignment of value to a corporation’s shares. If a corporation’s shares have a par value (today, no state requires that they do), that value must appear in the corporation’s articles of incorporation.

Question 4

Watered Stock

Answer 4

Watered stock is stock improperly exchanged for property or services that are overvalued, such that the corporation receives inadequate consideration for the shares.

Question 5

Preemptive Rights

Answer 5

Preemptive rights” give existing shareholders the right to acquire new stock, of the same class, in proportion to their existing stock ownership when the corporation issues new shares.