RSM424H1 Chapter Notes - Chapter 12: Downside Risk, Share Capital, Issued Shares
22 Feb 2017
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Chapter 12 organization, capital structures, and income distributions of corporations. Corporate capitalization by share capital: a common share is a share that entitles the owner to share in corporate assets and earnings beyond the initial share price plus a fixed premium or dividend rate. Preferred shares seldom increase in value because the potential return is predetermined and fixed but can decline in value if corporate assets are depleted. Certain preferred shares pay dividends that fluctuate in relation to changes in interest rates at particular times. Share capital provides a return to its owners in the form of dividends. Dividends are not deductible by the corporation and are taxable to the individual shareholder. This treatment imposes a two-tiered system of taxation. The corporation must earn income, pay tax, and use its after-tax earnings to pay dividends. A corporation issuing debt can pay interest from pre-tax profits. This occurs when the shareholder requires an annual cash return on investment: loss on investment.
