Chapter 11 - Stockholders’ equity: Paid-in capital. Learning objectives of this chapter include: Discuss the advantages and disadvantages of organizing a business as a corporation, distinguish between publicly owned and closely held corporations, explain the rights of stockholders and the roles of corporate directors and officers,. | STOCKHOLDERS’ EQUITY: PAID-IN CAPITAL Chapter 11 2 Existence is separate from owners. An entity created by law. Has rights and privileges. Privately, or Closely, Held Publicly Held Ownership can be Corporations Limited personal liability for stockholders. Transferability of ownership. Professional management. Continuity of existence. Advantages of Incorporation Heavy taxation. Greater regulation. Cost of formation. Separation of ownership and management. Disadvantages of Incorporation Publicly Owned Corporations Face 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. The costs associated with incorporation are usually expensed immediately, but amortized over 5 years for tax purposes. 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 Ultimate control Stockholders usually meet once a year. Stockholder ledgers are often maintained by a stock transfer agent or stock registrar. Rights of Stockholders Each unit of ownership is called a share of stock. A stock certificate serves as proof that a stockholder has purchased shares. Rights of Stockholders When the stock is sold, the stockholder signs a transfer endorsement on the back of the stock certificate. Rights of Stockholders Overall responsibility for managing the company. Selected by a vote of the stockholders Functions of the Board of Directors Chief Accountant Contractual and legal representation Custodian of funds Functions of the Corporate Officers Paid-In Capital of a Corporation The maximum number of shares | STOCKHOLDERS’ EQUITY: PAID-IN CAPITAL Chapter 11 2 Existence is separate from owners. An entity created by law. Has rights and privileges. Privately, or Closely, Held Publicly Held Ownership can be Corporations Limited personal liability for stockholders. Transferability of ownership. Professional management. Continuity of existence. Advantages of Incorporation Heavy taxation. Greater regulation. Cost of formation. Separation of ownership and management. Disadvantages of Incorporation Publicly Owned Corporations Face 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. The costs associated with incorporation are usually expensed immediately, but amortized over 5 years for tax purposes. Formation of a Corporation Each corporation is formed according to the laws of the state where it is
