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Lecture 1

COMMERCE 1AA3 Lecture 1: COMMERCE 1AA3- Chapter 9


Department
Commerce
Course Code
COMMERCE 1AA3
Professor
Emad Mohammad
Lecture
1

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COMMERCE- 1AA3 November 25, 2018
Chapter 9
Shareholders’ Equity
Corporation
Separate legal entity
Has most of the rights and privileges of a person
Classified by purpose and ownership
Purpose: profit or nonprofit
Ownership: public or private -traded on the stock exchange or not
Characteristics of a Corporation
Separate legal existence
Limited liability of shareholders
Transferable ownership rights
Ability to acquire capital
Continuous life
Corporation management
Government regulations
Income taxes
Advantages and Disadvantages of Corporations
Advantages
Corporate management
professional managers
Separate legal existence
Limited liability of shareholders
Deferred or reduced taxes
Transferable ownership rights
Ability to acquire capital
Continuous life
Disadvantages
Corporation management
ownership separated from management
Increased costs and complexity in order to adhere to government regulation
Additional taxes

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COMMERCE- 1AA3 November 25, 2018
Chapter 9
Shareholders Rights
To raise capital, the corporation sells shares
If there is only one class of shares, these are referred to as common shares
Ownership rights are specified in articles of incorporation or in by-laws
Share Terminology
Share Capital and Contributed Capital
Authorized shares
maximum amount of shares a corporation is allowed to sell as authorized by
corporate charter
Issued shares
number of shares sold
Outstanding Shares
Number of shares sold less treasury shares
Number of shares sold treasury
Par Value (or stated value)
This is not allowed in Canada.
Arbitrary amount assigned to share of stock
Federally and most provincially incorporated companies have shares issued without par
value
Issuance of Common Shares
Par value shares: Prohibited under CBCA and most provincial corporation Acts
No par value shares
IPOs and Seasoned Equity Offering
Sale of shares in secondary markets
Net Income bottom line is the most important number
Preferred Shares
Preferred shares have priority over common
shares with regards to:
1. Dividends (if they are declared or promised)
2. Assets in the event of liquidation
Preferred shareholders usually do not have voting rights
Preferred shares are shown first in the share capital section of shareholders' equity

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COMMERCE- 1AA3 November 25, 2018
Chapter 9
Preferred Share Preferences
Liquidation preference common feature
Cumulative (dividends in arrears) sometimes it’s not cumulative
Convertible voting rights, multiple shares, common shares are more traded
Redeemable/callable (company option) call option
Retractable (shareholder option) put option
Shareholders’ Equity
Share capital (contributed capital- two or three owners)
Contributed surplus *not on the exam*
Retained Earnings
Accumulated other comprehensive income-retained earnings for OCI *Not on the
exam*
Comparison of Issuing Stock and Debt
Issuing Stock for Cash
Stock Issued for Non-Cash Assets
Asset received is recorded at current market value
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