All About Corporate Stock - Explained
Things to Understand About Stock
- Marketing, Advertising, Sales & PR
- Accounting, Taxation, and Reporting
- Professionalism & Career Development
Law, Transactions, & Risk Management
Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
- Business Management & Operations
- Economics, Finance, & Analytics
Early Information about Corporate Shares?
At the time of formation, a corporation authorizes shares to issue to shareholders in exchange for capital.
What are Promoters and Stock Subscription Agreements?
Often the promoters of the corporation will seek promises from individuals to purchase stock in the corporation once it is fully formed. These subscription agreements provide certainty that the corporation will have operational capital post formation.
What are Authorized & Issued Shares?
The number of authorized shares of the corporation is stated in the articles of organization. This number generally far exceeds the number of shares actually issued to shareholders (issued shares). The corporation will retain the ability to issue more shares in the future.
What is Treasury Stock?
Sometimes the corporation will repurchase shares that have been issued. The repurchased shares are held by the corporation as treasury stock. There are a number of strategic reasons for repurchasing issued shares.
Next Article: Fiduciary Duties of Corporate Shareholders Back to: CORPORATE GOVERNANCE
What is Equity Compensation?
Corporations often award additional shares to current shareholders as a form of dividend. This has the effect of transferring the value of the stock dividend from the retained earnings to the corporations shareholders equity or capital account.
What is a Stock Split?
If the corporation has a need for additional shares, it may authorize more shares or execute a stock split. A stock split effectively doubles the number of outstanding shares and reduces the share value by one half. This will double the amount of treasury stock on hand and the lower stock value generally serves to make the stock more liquid.
What is a Share Transfer?
Unless there is an agreement otherwise, shareholders may generally transfer their stock to others. This may require the corporation to collect the sellers shares and distribute new shares to the purchaser. Stock can be divided into categories called classes, and these classes can be further divided into subcategories called series. Series simply indicate the time of issuance of a certain number of shares. Different classes of stock may have very different rights. For example, a class of preferred stock is different from a class of common stock. All series in a class are fundamentally the same, except for minor distinctions.
What are the Classes of Stock Ownership?
Classes of stock ownership are generally categorized as follows:
- Common Stock - Common stock is the baseline corporate ownership interest. Common shareholders have general voting rights but hold the lowest priority for payment of dividends in the event of distribution or liquidation of the corporation.
- Preferred Stock - Corporations authorize and issue preferred stock for a specific purpose. Generally, this purpose is to provide special rights to certain shareholders, such as investors and corporate founders.
What are Stock Options & Warrants?
Options and warrants provide the right to purchase a given quantity of stock at a stated price. These are used to incentivize the holders to work to raise the value of corporation shares. Also, these instruments may provide tax incentives to the recipient. These rights can be very important when the value of the stock rises above the purchase price. There can be an infinite number of classes of preferred shares each with unique rights. The most commonly designated special rights associated with preferred shares are as follows:
What are Stock Dividends?
Common shareholders may receive dividends as an entitlement of corporate ownership. Preferred shareholders often receive priority of payment of dividends above common shareholders. This type of right varies, but generally a preferred shareholder will receive full payment or distributions of dividends before common shareholders receive anything. For example, cumulative dividend rights means that the preferred shareholder will receive full payment of any current and past, unpaid dividends before common shareholders receive payment of current dividend distributions.
What are Stock Liquidation Preferences?
Preferred shareholders generally receive a liquidation preference. This means that the preferred shareholder will be paid first from the proceeds of any sale or liquidation of the corporation or its assets. Often, preferred shareholders will receive some stated amount or multiple of their initial investment before other shareholders receive any distribution.
- Voting Rights - Preferred shareholders may have any form of modified voting rights. For example, the preferred shareholder may have the right to vote for specific corporate actions or to elect specific seats on the board of directors. In other situations the preferred shareholder may not have any voting rights.
How do you feel about different classes of corporate ownership with different rights? What effect, if any, do you think it has in affording certain shareholders greater rights than other shareholders? Why?
Tom is an investor in ABC Corp. He wants to make certain that he receives a return on his investment and that other shareholders do not benefit from corporate profits ahead of him. What stock rights might Tom secure for himself when negotiating his investment?
- Tom should negotiate for preferred shares. Preferred shares receive a number of rights above those of common shareholders. These include preferred payment of dividends, cumulation of unpaid dividends, and liquidation preferences (first payment of interest in the even the company is sold).
- Corporate Governance Law (Intro)
- What is Business Governance?
- Berle-Means Thesis
- Corporate Governance Rating Definition
- Who are the members of a corporation?
- Corporate Charter
- Shareholder Register
- Common Stock
- Preferred Stock
- Par Value
- Authorized Shares
- Issued Shares of Stock
- Unissued Shares of Stock
- Outstanding Shares
- Institutional Shares
- Dual Class Shares
- What is a closely-held corporation?
- Close Corporation Plan Definition
- What is a Private Company vs a Public Company?
- What is the role and purpose of the corporation?
- What is the Agency theory of corporate governance?
- Shareholder-Centric Perspective
- Shareholder Value
What is the Stakeholder theory of corporate governance?
What is the role & rights of Shareholders in the corporation?
- Shareholder Democracy Definition
- Quorum Definition
- Class Voting Shareholders
- Changing the Voting Rules
- Supermajority (Voting)
- Shareholder Sponsored Proposal
- What are the variations on attributes of Ownership structure?
- Stock Split
- What are the fiduciary duties owed by shareholders?
- When is a shareholder personally liable for corporate obligations?
- Appraisal Rights
- Dissenter's Rights
- Say on Pay Rights
- How can shareholder enforce their rights (direct and derivative actions)?
- What is the process for bringing a Derivative action?
- What are corporate vote Proxies?
- Proxy Statement
- Proxy Fight or Contest Definition & Explanation
- What is Shareholder Activism and the significance of Institutional Investors?
- Activist Investor
- Overview of Board of Directors
- Board Decision Making
- Advisory Board (Observer Directors)
- What is the role of the Board of Directors?
- Board of Trustees
- Board of Governors
- Outside Director
- Outside Director or Non-Executive Director Definition
- Independent Outside Director
- Budget Committee
- Audit Committee
- Compensation Committee
- Nomination Committee (Corporate Board)
- What standards govern the actions of the board of directors?
- Duty of Candor Definition
- Board Evaluation Definition
- What is the Business Judgment Rule?
- What is D&O insurance?
- Codetermination (Foreign)
- What is the role of Managers of the corporation?
- What standards govern manager actions?
- Chief Executive Officer (CEO)
- Chief Financial Officer
- Chief Information Officer (CIO)
- Chief Investment Officer (CIO)
- Chief Legal Officer
- Chief Operating Officer
- Chief Risk Officer
- Chief Security Officer
- Chief Technology Officer (CTO)
- What are the primary state and federal corporate governance laws?
- What is the role of the state in corporate governance?
- What is the role of Securities Laws in corporate governance?
- What is the role of the Foreign Corrupt Practices Act in corporate governance?
- What is the Sarbanes-Oxley Act (SOX) effect on corporate governance?
- Sarbanes-Oxley Act (SOX)
- What is the Dodd-Frank Wall Street Reform and Consumer Protection Act effect on corporate governance?
- Corporate Monitors
- What industry organization standards affect corporate governance?
- How do proxy advisory firms affect corporate governance?
- What is the role of ethics in corporate governance?
- What are the major causes of corporate governance issues?
- What are the access to information issues?
- What are decision-making structure issues?
- What are the power struggle or competition issues?
- Holding Company
- What are hostile takeovers and defenses to hostile takeovers?
- Williams Act
- Staggered Board
- Delay-Tactic Defenses?
- Legal Lockup Defenses?
- White Knight and Pac Man Defenses?
- Jonestown Defense
- Lady Macbeth Strategy
- Macaroni Defense
- Yellow Knight
- Back-end Plan Definition
- Backflip Takeover Definition
- Dead Hand Provision Definition
- Kamikaze Defense
- Operating Company Property Company Model
- Scorched Earth Policy Definition
- Revlon Rule
- What are benefit-alignment issues?
- Cadbury Rules Definition