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Chapter 15

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BU393 Chapter 15 – Long-term Financing: An Introduction Week 6 Common Stock -Common stock is stock that has no special preference either in dividends or in bankruptcy -Owners of common stock in a corporation are referred to as shareholders or stockholders – they receive stock certificates for the shares they own -Common shareholders are protected by limited liability -Shares of common stock are the fundamental ownership units of the corporation -Shareholder rights: 1. The right to share proportionally in dividends paid 2. The right to share proportionally in assets remaining after liabilities have been paid in a liquidation 3. The right to vote on matters of great importance to shareholders 4. The right to share proportionally in any new stock sold when approved by BOD -Cumulative voting – a procedure whereby a shareholder may cast all of his votes for one member of the board of directors -Straight voting – a shareholder may cast all of his or her votes for each candidate for the BOD -Proxy – a grant of authority by the shareholder to transfer his voting rights to someone else Corporate Long-Term Debt: The Basics -Securities issued by corporations may be classified roughly as equity or debt -Debt represents something that must be repaid -When corporations borrow, they contract to make regularly scheduled interest payments and to repay the original amount borrowed -Typical debt securities: notes, debentures, bonds -Debentures and bonds are long-term debt -Bonds can be repaid at maturity or earlier through the use of a sinking fund -A sinking fund is an account managed on behalf of the issued by a bond trustee for the purpose of retiring all or part of the bonds prior to their stated maturity -Canada plus call – this new approach is designed to replace the traditional call feature by making it unattractive for the issuer ever to call the bonds. Unlike the standard call, with the Canada call the exact amount
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