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Definition
| an equity issued by regular corporations and investment companies. |
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| Fixed number of common shares. |
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| A specific value of the authorized stock. |
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No price value of stock or "no par common stock"
Sidenote: state tax corporation is based on par value of stock so companies set it low. |
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| Shares sold to the public market or treasury shares. |
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Definition
| Authorized shares that are not issued to the public market but held at the corporation. |
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| Shares that trade in the market. |
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| Shares bought back by the corporation after they are trading in the market. |
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Definition
Repurchased shares
Why Repurchase?
-Market price is low, good value to buyback.
-Less outstanding shares, increase earnings per share of outstanding stock.
-Shares can be used to fund pension plan / stock option plan obligations.
-Shares can be used later for payment for an M&A. |
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| Does Treasury Stock have voting right or eligible for dividend payment? |
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| Outstanding shares and treasury shares are what type of ____ shares. |
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| Are unissued shares authorized shares? |
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Term
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Definition
| Outside firm that maintains records and makes sure the company issues right amount of shares. |
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| Usually handles correspondence with shareholders. Transfer Agent settles daily trade settlements. Cancels old stock and reissues new stock. |
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| Does the Registrar act as a watchdog to the Transfer agent? |
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Definition
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Term
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Definition
| Record method of keeping rack of who owns shares and who no longer does. As kept by transfer agent and clearing house. |
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| Rights of a common share holder |
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Definition
>Limited liability, can only lose the value of the stock.
>Right to Vote: board members and matters affecting ownership interest.
>Convertible bonds since they dilute commonstock. |
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| Items that require Shareholder vote: |
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Definition
>Declare a stock split.
>Declare a reverse stock split.
>Issue convertible bonds or preferred stock.
Issue stock options to officers on a preferential basis. |
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| Stock Splits & Reverse stock Splits affect the par value, does this require shareholder approval? |
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Definition
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| Do Convertible Securities dilute existing shares, reducing owner's ownership? |
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Definition
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Definition
| Is seen as "self-dealing" and requires shareholder approval. |
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| Items that DO NOT require shareholder vote: |
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Definition
>Declare cash dividend
>Declare a stock dividend.
>Declare a rights distribution.
>Repurchase shares for treasury. |
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| 1 Vote Per share ! What are the two types of voting procedures? |
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Definition
>Statutory Voting
>Cumulative Voting |
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Term
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Definition
| 1 vote per share and you get these amounts of votes for every item to vote on. So you get a total of votes owned x item to vote on. |
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| 1 vote per share: you get 1 vote per share x item to vote on upon which you can use the total on any issue across the board. |
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Definition
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Definition
| Some classes have voting privileges others don't. |
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| Do shareholders have the right to inspect books? |
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Definition
YES
Doesn't traditionally happen since SEC audits the company per The Securities Act of 1934. |
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Right to Transfer
Negotiable |
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Definition
| Can sell their common stock ownership to any one. |
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Term
Right to Transfer
Non Negotiable |
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Definition
| Mutual Funds, Savings Bonds |
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Term
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Definition
| A Right offering if the corporation issues more shares common stockholders have the right to buy these first to maintain their stake. |
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| Right to Corporate Distribution |
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Definition
| Common shareholders right to pro-rata distribution of stock dividends or cash dividends. |
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| Right to Corporate Assets upon dissolution: |
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Definition
| If in the unlikely event there are any assets remaining after a corporation goes bankrupt the shareholders are the last to get paid. |
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| Corporate Distribution Procedures |
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Definition
>Announcement must be made with:
-Declaration date
-Record date
-Payable date |
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Term
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Definition
| Date the dividend is declared |
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Definition
| The date the corporation records the information of who is to be mailed out dividends. |
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Definition
| The date the transfer agent will mail out checks or issue stock dividends. |
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Definition
| Set a date that is the last date to buy stock before dividends are paid. |
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| Do stocks need to settle by record date to be paid a dividend? |
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Definition
YES
-If after this date, there is no dividend paid. |
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Term
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Definition
| The stock is trading with the dividend (Before the record date.) |
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Term
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Definition
| Stock bought after the record date and not holding dividend value. |
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Term
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Definition
| The date after the record date in which the price of the share reduces to minutes the dividend. |
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Term
| What Right Distributions do Shareholders have if they exercise their preemptive right? |
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Definition
>They can subscribe to a lower price by skipping the underwriter fee.
>30-60 Day Expiration: Can sell the rights to someone else to buy the stock at this discounted price.
>Right per share: you get one right per share until expiration. |
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Term
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Definition
| Usually the Transfer Agent that issues additional shares, upon presentation of rights certificate. |
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| Rights Offering Performed with a Standby Underwriter |
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Definition
| Stand by underwriter to sell any remaining shares to the public. If the existing shareholders don't buy the new shares up, |
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Term
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Definition
| Shareholders can sell to someone else to by the stock at this discounted price. |
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Term
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Definition
| You get one right per share. The can use it or trade it in the open market until expiration. |
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Term
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Definition
| The value of the stock with right in it before the record date, which will receive the right when it settles. |
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Term
Value of Right:
(Cum Right) |
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Definition
Value of Right =
Market Price - Subscription Price
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N + 1
Where N= Number of rights to buy 1 share.
$20 - $14 = $6 = $1 value per right
__________ ___
5 = 1 6 |
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Term
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Definition
Adjusted Market Price - Subscription Price
divided by Number of Rights per Share
29 - 19 / 10 = 10/10 = 1
where you need 10 rights and 29 is the adjusted market price and 19 the subscrition price. |
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Term
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Definition
| 104 Shares to 105 can be round up. |
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Term
Which of the following term describes common stock:
I. Negotiable
II. Non-Negotiable
III. Callable
IV. Non-Callable
A. I and III
B. I and IV
C. II and III
D. II and IV |
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Definition
B. I and IV
Negotiable and Non-Callable |
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Term
The market price of common stock will be influenced by which of the following?
I Expectations for future earnings of the company
II Expectations for future dividends to be paid by the company
III Book value per share
IV Par value per share |
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Definition
| The best answer is A. The market price of common stock is determined by investor expectations about the future of the company. Par value and book value have no bearing on the market price of the common. |
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Term
The definition of Treasury stock is:
A. authorized shares minus issued shares
B. issued shares minus outstanding shares
C. authorized shares minus outstanding shares
D. capital in excess of par value minus par value |
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Definition
| The best answer is B. If a company has the same number of issued shares as the number of shares outstanding, then no shares have been repurchased for the company's Treasury. However, if the company repurchases shares, the number of outstanding shares decreases. Thus, the definition of Treasury stock is issued shares minus outstanding shares. |
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Term
All of the following statements are true regarding the effect of the purchase of Treasury Stock EXCEPT:
A. the number of outstanding shares is reduced
B. the earnings per share is increased
C. the market price of the stock will increase
D. the number of authorized shares will be reduced |
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Definition
| The best answer is D. Treasury stock is deducted from outstanding shares and since outstanding shares are reduced, earnings per share increases. As earnings per share rises, this makes the stock more attractive to investors, who will bid up the stock's price in the market. The purchase of Treasury Stock has no effect on authorized shares. |
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Term
A corporation has issued 20,000,000 shares of common stock at $2 par. The corporation has 5,000,000 shares of Treasury Stock on its books. The aggregate value of the outstanding shares is:
A. $10,000,000
B. $30,000,000
C. $40,000,000
D. $50,000,000 |
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Definition
| The best answer is B. Outstanding stock is: Issued stock (20,000,000 shares) - Treasury stock (5,000,000 shares) = 15,000,000 shares outstanding at $2 par = $30,000,000 value. |
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A corporation has issued 50,000,000 shares of common stock at $.50 par. The corporation has 10,000,000 shares of Treasury Stock on its books. The aggregate par value of the outstanding shares is:
A. $20,000,000
B. $40,000,000
C. $80,000,000
D. $100,000,000 |
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Definition
| The best answer is A. Outstanding stock is: Issued stock (50,000,000 shares) minus Treasury stock (10,000,000 shares) = 40,000,000 shares outstanding at $.50 par = $20,000,000. |
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Term
The transfer agent is typically responsible for all of the following functions EXCEPT:
A. maintaining a record of all shareholder names and addresses
B. acting as disbursement agent for the corporation
C. issuing new stock certificates
D. canceling old stock certificates |
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Definition
| The best answer is A. The transfer agent cancels old shares and issues new shares. It is the responsibility of the registrar to maintain the shareholder list, and to insure that the number of shares transferred from one shareholder to another always matches. The transfer agent typically performs the role of paying agent as well. When a corporation makes a distribution, the paying agent actually prepares and mails the checks (using the current shareholder list provided by the registrar). |
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Term
Which function would be performed by the registrar?
A. verifying the record of all shareholder names and addresses
B. acting as disbursement agent for the corporation
C. issuing new stock certificates
D. canceling old stock certificates |
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Definition
| The best answer is A. The transfer agent cancels old shares and issues new shares. It is the responsibility of the registrar to maintain the integrity of the shareholder list, and to insure that the number of shares transferred from one shareholder to another always matches. The transfer agent typically performs the role of paying agent as well. When a corporation makes a distribution, the paying agent actually prepares and mails the checks (using the current shareholder list provided by the registrar). |
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Term
Common dividends are paid:
I quarterly
II semi-annually
III on issued shares
IV on outstanding shares
A. I and III
B. I and IV
C. II and III
D. II and IV |
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Definition
| The best answer is B. Common dividends are usually declared and paid quarterly. Dividends are only paid on outstanding shares - defined as issued shares minus Treasury stock. |
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Term
A corporation can pay a dividend in which of the following fashions?
I Distributing tax credits to shareholders
II Distributing the stock of another company to shareholders
III Making a stock distribution to shareholders
IV Making a cash distribution to shareholders
A. I and II only
B. I, III, IV
C. II, III, IV
D. I, II, III, IV |
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Definition
| The best answer is C. Corporations can distribute a cash dividend; can distribute a stock dividend in additional shares of stock of that company; or can distribute a stock dividend in the form of shares of another company, typically a subsidiary. Tax credits cannot be distributed to shareholders under the corporate business form. They can only be passed to owners of partnerships. |
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Term
Corporate dividend payments can be made in the form of:
I Cash or company products
II Listed options of that company
III Additional common shares of another company
IV Additional common shares of that company
A. II, III, IV
B. I, II, III
C. I, III, IV
D. I, II, III, IV |
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Definition
| The best answer is C. Corporations can pay dividends as cash or company products. A corporation can also make a distribution of additional shares of that company or can issue a dividend consisting of shares of another company (typically a subsidiary). Options are created and issued by the Options Clearing Corporation, not the company. |
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Term
Stockholder approval is needed if a corporation wishes to:
I pay a cash dividend
II split its stock 2 for 1
III repurchase shares for its Treasury
IV issue convertible securities
A. I and IV
B. II and III
C. II and IV
D. I, II, III, IV |
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Definition
| The best answer is C. Stockholder approval is needed for a stock split, because it changes the par value of the stock. The State in which the company is incorporated typically requires shareholder approval of a par value change. In contrast, dividend decisions, either in cash or stock, do not require shareholder approval because they are "paid" out of retained earnings and do not affect par value per share. They are made solely by the Board of Directors of the company. Issuance of convertible securities requires shareholder approval because it is potentially "dilutive" (if the securities are converted, there will be more common shares outstanding, and earnings per common share will fall). The repurchase of shares for Treasury will boost earnings per share, because there will be fewer shares outstanding. This boosts the value of the existing common shares, so no shareholder approval is required. This is another decision that is made solely by the Board of Directors. |
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Term
Cumulative voting is considered to be an advantage as it:
I allows a proportionate voting weight
II allows a disproportionate voting weight
III is considered to be an advantage for the smaller investor
IV is considered to be an advantage for the larger investor
A. I and III
B. I and IV
C. II and III
D. II and IV |
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Definition
| The best answer is C. Cumulative voting allows a disproportionate voting weight to be placed on selected directors who are up for election. This is considered to be advantageous for the smaller investor, who wishes to have a specific director (or directors) elected. |
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Term
Cumulative voting is considered to be an advantage to the:
A. large investor
B. institutional investor
C. small investor
D. novice investor |
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Definition
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