Пойгина Л.Б., Туринова Л.А. - English for Masters. Management Part 2 (1175657), страница 22
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Stock may alsobe issued without par, in which case it is known as "no-par" stock. Some states require that no-parstock be assigned a stated value by the board of directors. The effect of this action is to cause astated value stock to be similar to a par value stock in its treatment.The second class of stock that a corporation may issue is generally known as preferred stock. Thepurchase price of preferred stock is usually higher than that of common stock.
Preferred stock alsohas a par or stated value assigned to it. The difference in cost between common stock and preferredstock can be seen in their par values. A corporation may assign an arbitrary par value to its commonstock of $10 per share, and a $50 par value to its preferred stock. Although purchasers will notnecessarily pay the par value in either case, this example indicates the substantial difference in theanticipated selling prices of the two types of stock. A corporation may oiler different categories ofpreferred stock based on the benefits that each class provides to stockholders.585 ____________________________________________________________The term "preferred" indicates that there are certain advantages to owning this class of stock thatjustify the higher price. The following characteristics of preferred stock should be noted whendeciding which class of stock to invest in:1.
Dividends are stated as a percentage on the face of the preferred stock certificate and aredistributed to all classes of preferred stock before distribution to common stock. If the certificateindicates cumulative preferred stock the corporation is obligated to pay dividends to preferredstockholders for past years before distribution to common stockholders. If in past years a corporationhas been unable to pay dividends, or has merely decided not to, then the arrearage for those pastyears, as well as current dividends, must be paid to the preferred stockholder before the current year’sdividends can be paid on common stock.
If the certificate indicates noncumulative preferred stock,then any dividends not paid at the end of a given year are lost. In a year in which dividends are paidthere still exist preference rights for the preferred stock. Cumulative rights will obviously cause thisform of preferred stock to be more costly to the investor than noncumulative stock. Manycorporations refrain from offering noncumulative stock because of the disadvantage in the possibleloss of dividends.2.
Preferred stock may also have a provision for participation in the dividend distribution beyondthe stated dividend percentage on the certificate. Participating preferred stock participates dollarfor-dollar with the common stock in any dividend paid in excess of the stated rate on the preferredstock. Generally, when there are adequate funds to pay both preferred and common dividends, thecommon dividend is paid at the same rate as preferred.
Any additional distribution is shared by thecommon and preferred stockholders based on a ratio of the number of shares of each class of stock.3. Most preferred stock has what is known as a callable provision. At the option of the issuingcorporation, the preferred stock may be bought back by the corporation at the stated price, usuallyabove the original purchase price.
The callable provision will be stated on the stock certificate. Acorporation (usually when organizing) issues callable preferred stock, in addition to other classes ofstock, in order to be able eventually to buy the stock back when profits are adequate to do so. Thecallable provision is exercised at the discretion of the corporation.4. In the event of liquidation of the corporation, the preferred stockholders are entitled to receive adistribution of the assets of the corporation after the settlement of all outstanding obligations tocreditors.
The preferred stockholder "stands" behind the creditors, but in front of the commonstockholder in the distribution upon liquidation. Preferred stockholders are entitled to payment in fullof the par value of their stock, or even a higher stated liquidation value, before any payment is madeto common stockholders. Also, if the stock is cumulative preferred, any arrearage must also be paidbefore payment to the common stockholders.5. A provision less commonly found in a preferred stock indenture is a conversion clause, whichpermits the preferred stockholder to convert this stock into common stock.
This provision makes thestock more attractive to future investors. The stock certificate indicates the conversion ratio. Shouldthe company prosper and the value of the common stock increase, the holder of preferred stock mayexercise this conversion privilege and benefit from the increased value of the company's commonstock.A final characteristic of preferred stock should be mentioned: preferred stock, regardless of itsclass, lacks voting rights.
The advantage to the corporal ion in Issuing preferred stock is that capitalcan be raised without granting preferred stockholders control of the corporation through the electionof the board of directors. Common stock is the only class of stock with voting rights.596 __________________________________________________________As stated previously, the articles of incorporation set the number and classes of stock that acorporation may sell.
The number of shares of stock that the charter permits to be sold constitutes theauthorized shares. When all or part of the authorized shares are sold, these shares are said to beissued. The shares remaining in the hands of the stockholders are known as the outstanding stock.From time to time a corporation may, in addition to selling shares, go into the open market and buyback its own previously issued shares. Such shares become known as treasury stock. The differencebetween the number of shares issued and the number outstanding represents treasury stock.
When acorporation buys back its own stock, the stock loses certain rights that the traditional stockholderenjoys. Treasury stock does not share in dividend distributions and, if the stock is common, votingrights are lost as well.Entries on the corporate books are made only when the following kinds of stock transactions lakeplace:1.Corporate sale of authorized stock.2.Corporate purchase of its own stock in the open market.3.Corporate sale of treasury stock.7 ______________________________________All forms of business organizations prepare financial statements at least once a year.
Thesestatements are required by the various governments (federal, state, and city) for income tax purposes.Business firms, as well as other interested parties, utilize the information provided by thesestatements.The income statement for a corporation is identical to that of a sole proprietorship and apartnership.Since the ownership of a corporation is in the form of shares of stock, no statement of capital isprepared.
Income earned by a corporation and dividends paid are reflected in an account entitled"Retained Earnings." It becomes necessary, therefore, for a corporation to prepare a retained earnings statement, which shows the changes in retained earnings from the, beginning of the accountingperiod to the end of the accounting period.(from “Accounting” by Peter J. Eisen)2.Scanning exerciseScan Text 8 to find information for aspects:a)Preemptive rightsb)Dividendsc)Stockholders’ equityd)Cumulative preferred stock3.Vocabulary study exerciseGlossaryarticles of incorporation60authorized stockboard of directorscallable stock provisionclose corporationconversion clausecumulative preferred stockdissolutionincorporatorsissued stockliquidationnoncumulative preferred stocknot-for-profit corporationoutstanding stockparticipating preferred stockpar valuepreemptive rightspremiumprofit corporationpublic corporationshareholdersole proprietorshipstated valuestockholdertreasury stockunlimited lifea)Match the following notions with the correct definitions or phrase:1._______________________ is the ownership of the assets of a corporation as evidencedby transferable shares of stock.
On the balance sheet, the stockholders' equity section consists ofthe stock sold by the corporation and the retained earnings (income retained by the corporation).2.A corporation is a/an ___________________________ existing only in contemplation ofthe law.3.The formation of a corporation requires the ________________________ to file______________________ that stipulate the nature of the business and the number and kinds ofshares of stock to be sold.4.At the top of the organizational structure are the _______________________, who electthe _____________________ to oversee the operations of the organization.5.The board, in turn, appoints a president and other _________________________, who areresponsible for the day-to-day operations.616.Corporate stockholders have certain rights unique to this form of business organization:voting rights, _________________________, the right to receive a distribution of earnings or thecorporation in the form of dividends, and the right to receive a pro-rata share of the assets in theevent of _____________________.7.There are generally two classes of stock that a corporation may issue:____________________________ and _______________________.8.The arbitrary assigned to __________________ preferred stock is usually considerablyhigher because of certain features of the stock.9.Although ________________________________ does not have voting rights, it may beparticipatingandcumulativewithregardtodividends.Also,the______________________________ indicates the dividend obligation of the corporation on itsface.10.
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