ACCT 2301 Lecture Notes - Lecture 11: Common Stock, Stock Split, Preferred Stock
Corporations:
●A corporation is a legal entity.
●The founders of a corporation prepare and file the articles of incorporation which define its
structure, purpose, and authorized stock.
●If approved by the government, the founders next elect a Board of Directors and adopt the
corporation’s bylaws.
●In order to obtain the funds needed to begin operations, the corporation issues (sells) capital
stock to stockholders (owners of the corporation).
Corporate form advantages:
Separate legal entity
Limited liability
Transferability of ownership
Continuity of existence
Capital raising capability
Disadvantages:
●Organization costs
●Taxation
●Regulation and supervision
Par value:
○May have some legal implications concerning minimum issuance prices
○Legal capital—the minimum amount of contributed capital that must be maintained
Capital stock:
●Authorized shares
○The maximum number of shares that may be issued
●Issued shares
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Document Summary
The founders of a corporation prepare and file the articles of incorporation which define its structure, purpose, and authorized stock. If approved by the government, the founders next elect a board of directors and adopt the corporation"s bylaws. In order to obtain the funds needed to begin operations, the corporation issues (sells) capital stock to stockholders (owners of the corporation). May have some legal implications concerning minimum issuance prices. Legal capital the minimum amount of contributed capital that must be maintained. The maximum number of shares that may be issued. Shares that have been sold to stockholders. Issued shares that have been issued and remain in the hands of stockholders rather than having been purchased by the corporation. The most basic type of capital stock. If only one type present it will be common stock has voting rights on corporate matters. Has a preemptive right to purchase new shares to maintain proportionate ownership in the corporation.
