Comprehensive Volume, 18 th Edition Chapter 47: Corporate Stocks and Bonds

Ownership Through Stocks The ownership of a corporation is evidenced by a holder’s shares of stock that have been issued by the corporation. Stock may be common stock or preferred stock.

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

Common Stock 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).

Preferred Stock Preferred stock 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.

Control and Rights Shareholders control the corporation indirectly by electing directors through their voting rights. 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.

Shareholders 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.

Bondholders 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.