Corporate Finance

Question 1

Common Shares

Answer 1

Provide shareholders with voting rights, but are last in priority to be entitled to a distribution of company assets.

Question 2

Preferred Shares

Answer 2

Generally entitled to be paid out from company assets upon dissolution before shareholders with common shares.

Generally do not carry voting rights.

Question 3

Authorized Shares

Answer 3

Are the maximum number of shares a corporation may issue, as set forth in the Articles of Incorporation.

NOT allowed ot issue more shares than authorized shares.

Question 4

Increasing Authorized Shares

Answer 4

To increase:
1) The Articles of Incorporation must be amended,
2) The changes must be adopted by the Board of Directors, and
3) The changes must be approved by a majority vote of the shareholders

Question 5

Outstanding Shares

Answer 5

Total number of shares issued by the corporation and held by the shareholders.

Each outstanding share is entitled to one vote.

Question 6

Reacquired Shares

(treasury shares)

Answer 6

Are considered authorized shares, but are not outstanding shares.

NOT allowed to be voted

Question 7

Distribution of Dividends

Answer 7

Are within the discretion of the Board of Directors and are normally protected under the business judgment rule.

Shareholder does not have the right to compel a corproation to issue a distribution.

Question 8

Reasons to Compel Distribution

Answer 8

A court can order a dividend/distribution upon a showing of:
1) bad faith or dishonest purpose, and
2) the funds were available for the dividend/distribution