3. Financing The Corporation Flashcards
(13 cards)
What are debt securities?
Debt securities are financial instruments that represent a loan made by an investor to a borrower, typically a corporation, and act as an IOU for the promise to repay principal plus interest at a specified time.
Debt security holders do not have voting rights and have priority over equity security holders in case of liquidation.
What rights do debt security holders have upon the liquidation of a corporation?
Debt security holders have priority of repayment over equity security holders, with secured debt holders receiving repayment before unsecured debt holders.
This means they are repaid first before any distributions are made to equity shareholders.
What do equity securities represent?
Equity securities represent ownership interests in a corporation and are typically issued as shares of stock.
Shareholders have no guaranteed return on investment or repayment of invested amounts.
What rights do shareholders have regarding dividends?
Shareholders have the right to receive dividends if declared by the board of directors.
Dividends are distributions of a portion of the corporation’s earnings to its shareholders.
What are liquidation rights for shareholders?
Upon liquidation, shareholders have the right to a share of corporate assets remaining after all creditors have been paid.
This means they can claim assets only after debt obligations are fulfilled.
What voting rights do shareholders possess?
Shareholders have voting rights to elect directors and approve major corporate transactions, such as mergers and increases in authorized shares.
These rights empower shareholders to influence corporate governance.
Define common stock.
Common stock carries ownership rights without fixed obligations, offering the highest risk and potential for gain if the business succeeds.
Common stockholders are last in line for assets upon liquidation.
What is preferred stock?
Preferred stock gives holders preferential rights to dividends and assets over common shareholders but typically lacks voting rights.
The preference refers to monetary distributions, not operational control.
What is par value in the context of shares?
Par value sets a floor price for the issuance of shares, but in Georgia, there is no requirement for shares to have a par value.
This means shares can be issued at any price deemed adequate by the board.
What forms can consideration for shares take in Georgia?
Consideration for shares may include:
* Cash or promissory notes
* Labor already done
* Contracts for future services
* Other securities of the corporation
This flexibility allows corporations to issue shares in exchange for various types of value.
What is the difference between redemption and repurchase of stock?
Redemption occurs when a shareholder sells shares back to the corporation, while repurchase is when the corporation buys shares from shareholders without needing express authorization.
Redemption requires provisions in the articles of incorporation, while repurchase does not.
Do shares need to be represented by certificates in Georgia?
Shares of a Georgia corporation need not be represented by certificates, but if they are, certain information must be included on the certificate.
This includes the number and class of shares, as well as any transfer restrictions.
What must be noted conspicuously on share certificates or information statements?
Transfer restrictions must be noted conspicuously, such as through a printed heading in capitals or contrasting typeface.
Failure to do so makes the transfer restriction unenforceable.
