PowerPoint Authors:
Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA
Stockholders’ Equity:
Stockholders’ Equity:
Paid-In Capital Paid-In Capital
Chapter 11
Existence is separate from
owners.
Existence is separate from
owners.
An entity created by law.
An entity created by law.
Has rights and privileges.
Has rights and privileges.
Privately, or Closely Held
Publicly Held
Ownership can be Ownership
can be
Corporations
Corporations
Limited personal liability for
stockholders Limited personal
liability for stockholders
Transferability of ownership
Transferability of ownership
Professional management Professional management
Continuity of Continuity of
Advantages of Incorporation
Advantages of Incorporation
Heavy taxation Heavy taxation Greater regulation Greater regulation
Cost of formation Cost of formation
Separation of ownership and
management Separation of ownership and
management
Disadvantages of Incorporation
Disadvantages of Incorporation
The costs associated with incorporation are usually expensed immediately, but
amortized over 5 years for tax purposes.
The costs associated with incorporation are usually expensed immediately, but
amortized over 5 years for tax purposes.
Formation of a Corporation Formation of a Corporation
•
Each corporation is formed according to the laws of the state where it is located.
•
The application for
corporate status is
called the Articles
of Incorporation.
Stockholders
Rights
Voting (in person or by proxy).
Proportionate distribution of
dividends.
Proportionate distribution of
assets in a liquidation.
Rights of Stockholders
Rights of Stockholders
C o r p o r a t e O r g a n iz a t io n C h a r t
S e c r e t a r y T r e a s u r e r C o n t r o l l e r O t h e r V i c e P r e s i d e n t
B o a r d o f D i r e c t o r s S t o c k h o l d e r s
Ultimate control Ultimate
control
Rights of Stockholders Rights of Stockholders
Stockholders usually meet
once a year.
Stockholders usually meet
once a year.
C o r p o r a t e O r g a n iz a t io n C h a r t
S e c r e t a r y T r e a s u r e r C o n t r o l l e r O t h e r V i c e P r e s i d e n t s P r e s i d e n t
B o a r d o f D i r e c t o r s S t o c k h o l d e r s
Functions of the Board of Directors Functions of the Board of Directors
Primary functions are to set corporate policies ad protect stockholders.
C o r p o r a t e O r g a n iz a t io n C h a r t
S e c r e t a r y T r e a s u r e r C o n t r o l l e r O t h e r V i c e P r e s i d e n t
B o a r d o f D i r e c t o r s S t o c k h o l d e r s
Chief Accountant
Chief Accountant Contractual and legal
representation
Contractual and legal representation
Custodian of funds
Custodian of funds
Functions of the Corporate Officers
Functions of the Corporate Officers
Publicly Owned Corporations Face Publicly Owned Corporations Face
Different Rules Different Rules
By law, publicly owned corporations must:
Prepare financial statements in accordance with GAAP.
Have their financial statement audited by an independent CPA.
Comply with federal securities laws.
Submit financial information for SEC review.
Stockholders usually meet once a year.
Stockholders usually meet once a year.
Stockholder ledgers are often maintained by a stock transfer agent or stock registrar.
Stockholder ledgers are often maintained by a stock transfer agent or stock registrar.
Stockholder Records in a Stockholder Records in a
Corporation Corporation
Each unit of ownership is called a share of stock.
Stock certificates serve as proof that a stockholder has purchased shares.
Each unit of ownership is called a share of stock.
Stock certificates serve as proof that a stockholder has purchased shares.
When the stock is sold, the stockholder signs a transfer endorsement on the back of the stock
certificate.
When the stock is sold, the stockholder signs a transfer endorsement on the back of the stock
certificate.
P a i d - i n C a p i t a l C o n t r i b u t i o n s b y i n v e s t o r s i n e x c h a n g e
f o r c a p i t a l s t o c k .
R e t a i n e d E a r n i n g s R e t e n t i o n o f p r o f i t s
e a r n e d b y t h e c o r p o r a t i o n . S t o c k h o l d e r s ' e q u i t y i s
i n c r e a s e d i n t w o w a y s .
Stockholders’ Equity of a Corporation
Stockholders’ Equity of a Corporation
Unissued Shares Unissued
Shares
Treasury Shares Outstanding
Shares
Treasury shares are issued shares that have been reacquired
by the corporation.
Treasury shares are issued shares that have been reacquired
by the corporation.
Issued Shares Issued Shares
Outstanding shares are issued shares that are
owned by stockholders.
Outstanding shares are issued shares that are
owned by stockholders.
Authorized Shares Authorized
Shares
Authorization and Issuance Authorization and Issuance
of Capital Stock
of Capital Stock
Common stock can be issued in three forms:
Common stock can be issued in three forms:
No-Par Common
Stock No-Par Common
Stock Par Value
Common Stock Par Value
Common Stock
Stated Value Common
Stock
Stated Value Common
Stock
All proceeds credited to Common Stock
All proceeds credited to Common Stock
Treated like par value common
stock
Treated like par value common
stock
Stockholders’ Equity Stockholders’ Equity
Let’s examine this form of stock.
Let’s examine this form of stock.
Preferred Stock Preferred Stock
A separate class of stock, typically having priority over common shares in . . .
Dividend distributions (rate is usually stated).
Distribution of assets in case of liquidation.
