Financing thru Stocks
Stocks are the owned capital of a business and that it is considered a permanent investment. Stockholders are people who invest in stocks and their ownership in the corporation is evidenced by a stock certificate. Stocks may be obtained thru:
* Issuance of stock dividends
Almost all of the initial capital of the corporation including a large segment of the future capital comes from the sale of stock.
* Refers to the procurement of corporate funds through the sale of shares of stocks to prospective investors * It is a method of financing by increasing the equity capital. Major Classification of Stocks
Authorized capital stock, capital; and capitalization
Authorized capital stock- is the total amount of stocks of all classes authorized in the certificate of incorporation. * It may consist of the issued stocks and the un-issued stock of the corporation. Capital stock- represents the actual amount of stocks of all classes which are issued and outstanding any time and not necessary the total amount of authorized capital stock, a large part of which is un-issued. Capital- depends on whose point of view it is being defined. To accountants- capital refers to the total ownership of the business which is obtained by deducting the total liabilities from the total assets. To businessman- capital refers to all assets of the business regardless of where it came from whether equity capital or borrowed money. To economist- capital would be all productive assets used in the business excluding non-productive assets Capitalization- refers to the sum of the face or par value of all outstanding stocks and bonds issued by the corporation. In case of no par value stocks the value carried in the balance sheet will be used. This can be computed by adding to the capital stock all bonded indebtedness issued by the corporation. Un-issued capital stock – this is a portion of the authorized capital stock which have not yet been subscribed and remains in the corporation. Issued capital stock – this refers to the stock already issued and outstanding. Outstanding stock – this refers to all issued and subscribed stocks which may be fully paid or partly paid which are held by stockholder other than the issuing corporation. Treasury stocks – refers to those stocks issued and fully paid but re-acquired by the issuing corporation. Re-acquisition may either be through purchase, a gift and donation to the corporation. These stocks are not part of the outstanding stock unless sold by the corporation. They lose their voting rights and are not entitled to dividends. Call – a resolution passed by the board of directors to demand payment for the unpaid subscription. Interest may be collected by the corporation from the time the call is made. The following are the requirements for a call:
1. A board resolution must be made specifying the percentage of the unpaid balance due when and where and to whom payment should be made. 2. The resolution must specify the date of delinquency which shall not be less than 30 days nor more than 60 days from the date of the call. 3. A notice of a call for payment must be sent to the stockholder. Auction sale of Delinquent stocks
Advantages of Preferred stocks
Cases when stocks sold on auction can be recovered by the delinquent stockholder: 1. Defect or irregularity in the call for unpaid subscription 2. Defect or irregularity in the notice of delinquency
3. Defect or irregularity in the sale
Court action – there are instances when the corporation may want to sue the delinquent stockholder rather than resorting to auction sale. The Corporation has to comply with some legal requirements such as the notice and publication of the call to be able to file a lawsuit against the delinquent stockholder. Classes of stock
Stocks are divided into several classes providing numerous combinations of elements such as income, risk,...
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