Chapter 13 Notes

Corporations: Organization, Stock, Transactions, and Dividends

Corporations make up 20 percent of the businesses in the economy but 90 percent of total business dollars made in the US

Corporation-is a legal entity distinct and separate from the individuals who create and operate it. corporations can acquire, own and dispose of property in its own name. 

Stocks- This is a characteristic of large corporations. It is when corporations sell a portion of its ownership. This allows corporations to generate large amounts of capital. The buying and selling of a corporations stock does not affect the operations and existence of the company.

Stockholders- Also called shareholders are the people who own stock in the corporation. Stockholders have limited liability. Stockholders also control the corporation by electing the board of directors.

There are two different types of corporations there are public corporations or there are private corporations

Public Corporations- Corporations whose shares of stock are traded in public markets

Private Corporations- Corporations whose shares of stock are not traded publicly. They are usually bought by a small group of investors in a nonpublic or private market.

Board of Directors- It is a board of elected officers in a corporation that meet periodically to establish corporate policies and also manage day to day affairs with in the business.

Organizational Structure of a Corporation

*Stockholders

*Board of Directors
*Officers

*Employees

Forming a corporation

First step is filing for an application of incorporation

laws of incorporation differ from state to state and corporations usually organize in the states with more favorable laws. For example Delaware is a popular for corporations to form.

Secondly after the application of incorporation has been approved the state must grant a charter or articles of incorporation. These articles is what formally makes the business a formal corporation.

Bylaws- are rules and procedures for conducting the corporations affairs.

Many costs go into the creation of a corporation called Organizational Expenses these costs include things such as legal fees, taxes, state incorporation fees, license fees, and promotional costs.

* the journal entry for organizational expenses is organizational expenses is debited and cash is credited 

Stockholders Equity

There are many names for owners equity in a corporation for example is is commonly referred to as stockholders equity, shareholders equity, shareholders investment, or capital. 

There are two main sources of stockholders equity paid in capital and retained earnings

Paid in Capital- Capital contributed to the corporation by the stockholders 

Retained Earnings- Net income retained in the business

*Stockholders Equity Journal entry is common stock and retained earnings debited added together to get total stockholders equity which is then credited

Deficit- A debit in Retained earnings, this balance results from accumulated net losses.

Characteristics of Stock

Outstanding Stock- Stock remaining in the hands of stockholders
Par- Shares of stock that are often assigned a monetary amount
Stated Value- requirement of some statees that says board of directors have to assign a value to no- par stock

Stock Certificates are  given to stockholders that indicate a ownership of the stock and the value and amount of stock owned.

Stockholders also have major rights, are parrtical owners of a company or corporation

• right to vote in matters concerning the company
• right to share in distribution of earnings
• right to share in assets on liquidation

Classes of Stock

Common Stock- When only one class of sotck is issued, each share of common stock has equal rights
Perferred Stock- Common example of perferred rights when owning stock is the prreference to dividends

Issuing Stock

The journal entry for issuing stock to investors is done by using a seperate account . Cash is debited and perferred stock and common stock are credited.

The price at which stock can be sold by a corporation depends on a variety of factors

• Financial conditions, earnings records, and dividend record of the corp.
• Investor expectations of the corp potential earning power
• General business and economic conditions and prospects

Premium- When stock is issued for a price that is more than its par the stock has sold at a premium price