Accounting Basics

Accounting Basics

  • Submitted By: ghostride
  • Date Submitted: 12/15/2009 8:00 PM
  • Category: Business
  • Words: 288
  • Page: 2
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. Forming a Publicly Held Corporation – Logistics & Terminology
A. Choose to incorporate because of the many benefits associated with this form of organization (as we discussed in Chap 1)
B. File Articles of Incorporation with the State
 More or less a “contract” that spells out:
1. The name, purpose, officers & location of the business
2. The authorized # of shs of each type of stock that the company will issue (i.e., the maximum number of each type of stock the company can issue)
3. The par value assigned to each type of stock the company will issue (an antiquated idea having to do with legal capital of the corporation, basically was a constraint on the amount of divs a corp could pay…now only useful in acctg for stock issuances – see below).
Note: there is also such a thing as stated value for stock is  par value; so for acctg purposes, it’s treated the same way
Note: there is also such a thing as no-par value stock (i.e., no par value is assigned to the stock)
C. If State approves Articles of Incorp, the corp receives its Charter (a sort of “permit” to operate)
D. Establish corporate Bylaws (rules/procedures for ops)
E. Choose an investment-banking firm to sell your securities to…who, in turn, will sell those shares to the public (called “indirect” issuance of stock to the public)
F. Key point for issuing stock: the co can raise money w/o having an obligation to repay
Result: more risk for those buying the stock -- so in return, these people (investor/owners) expect a higher return than they would earn from loaning money to the company (i.e., the risk-return relationship)

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