Chapter 46 Corporate Stocks and Bonds

1. Chapter 46Corporate Stocks and Bonds Twomey, Business Law and the Regulatory Environment (14th Ed.)

2. Valuation of Stock [46-1] Value Received by Corporation for its Outstanding Stock = CapitalStock By Some Statutes – = PricePaid Par Value orState Capital Surplus No Par Value*(No Amount Stated on Certificate) = = PricePaid Value Received by Corporation for its Outstanding Stock CapitalStock  Book Value Per Share = Book Value Number of Outstanding Shares CorporateAssets Market Value of Shares = Price at Which Stock Can Be Voluntarily Bought or Sold on Open Market MarketValue *Note: RNBCA eliminates par value concept Chapter 46

3. Effects of Transfer of Shares[46-2] A sold to B on May 31. 1. If corporation declared cash dividend payable to shareholders of record on May 15. Cash distributed on June 5. A receives the cash dividend. 2. If corporation declared cash dividend on May 20 to be paid to those who will be holders on June 15. B receives the cash dividend. 3. If corporation declared stock dividend on May 10. Stock distributed on June 10. B receives the stock dividend. Chapter 46

4. Chapter 46 Summary The ownership of a corporation is evidenced by a holder’s shares of stock that have been issued by the corporation. Chapter 46

5. Chapter 46 Summary [2] Common stock is ordinary stock that has no preferences but entitles the holder to (1) participate in the control of the corporation by exercising one vote per share of record, (2) share in the profits in the form of dividends, and (3) participate, upon dissolution, in the distribution of net assets after the satisfaction of all creditors (including bondholders). Chapter 46

6. Chapter 46 Summary [3] Other classes of stock exist, such as preferred stock, which has priority over common stock with regard to distribution of dividends and/or assets upon liquidation. Shares may be acquired by subscription of an original issue or by transfer of existing shares. Chapter 46

7. Chapter 46 Summary [4] Shareholders control the corporation, but this control is indirect. Through their voting rights, they elect directors, and, by this means, they can control the corporation. Preemptive rights, if they exist, allow shareholders to maintain their voting percentages when the corporation issues additional shares of stock. Shareholders have the right to inspect the books of the corporation unless it would be harmful to the corporation. Chapter 46

8. Chapter 46 Summary [5] Shareholders also have the right to receive dividends when declared at the discretion of the directors. Shareholders may bring a derivative action on behalf of the corporation for damages to the corporation. Shareholders are ordinarily protected from liability for the acts of the corporation. Chapter 46

9. Chapter 46 Summary [6] Bonds are debt securities, and a bondholder is a creditor rather than an owner of the corporation. Bondholders’ interests are represented by an indenture trustee, who is responsible for ensuring that the corporation complies with the terms of the bond indenture. Chapter 46