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What is retained earnings?

Generally, retained earnings is a corporation's cumulative earnings since
the corporation was formed minus the dividends it has declared since it
began. In other words, retained earnings represents the corporation's
cumulative earnings that have not been distributed to its stockholders.
The amount of retained earnings as of a balance sheet's date is reported
as a separate line item in the stockholders equity section of the balance
sheet.
A negative amount of retained earnings is reported as deficit or
accumulated deficit.

What are the stockholders' equity

accounts?
The stockholders' equity accounts are balance sheet accounts and a part
of the accounting equation Assets = Liabilities + Stockholders' Equity. In
this light you can view the stockholders' equity accounts (along with the
liability accounts) as sources of the amounts reported in the asset
accounts.
If the source of an asset was an investor purchasing new shares of
common stock, the corporation would credit the stockholders' equity
account Common Stock and perhaps Paid-in Capital in Excess of Par-Common Stock, or Premium on Common Stock. If the source of an asset
was an investor purchasing new shares of preferred stock, the
corporation would credit the stockholders' equity account Preferred
Stock and perhaps Paid-in Capital in Excess of Par--Preferred Stock, or
Premium on Preferred Stock.

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If the source of an asset was the net income earned by the corporation,
the stockholders' equity account Retained Earnings would be credited. If
a corporation reduces its assets by purchasing its stock from its
stockholders, the contra-stockholders' equity account Treasury Stock is
debited.

What is the difference between par

and no par value stock?
Some states' laws require or may have required common stock issued by
corporations residing in their states to have a par value. The par value on
common stock has generally been a very small amount per share. Other
states might not require corporations to issue stock with a par value. So
the par value on common stock is a legal consideration.
From an accounting standpoint, the par value of an issued share of
common stock must be recorded in an account separate from the amount
received over and above the amount of par value. For example, if a
corporation issues 100 new shares of its common stock for a total of
$2,000 and the stock's par value is $1 per share, the accounting entry is a
debit to Cash for $2,000 and a credit to Common StockPar $100, and
a credit to Paid-in Capital in Excess of Par for $1,900. In total the Cash
account increased by $2,000 and the paid-in capital reported under
stockholders' equity increased by a total of $2,000 ($100 +$1,900).
If a corporation is not required to have a par value or a stated value and
the corporation issues 100 shares for $2,000, then the accounting entry
will be a debit to Cash for $2,000 and a credit to Common Stock for
$2,000.

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In other words, when the issued stock has a par value, the proceeds from
the issuance gets divided between two of the paid-in capital accounts
within stockholders' equity. If the issued stock does not have a par value,
the proceeds from the issuance goes into just one paid-in capital account
within stockholders' equity.

What is the difference between

stockholder and shareholder?
There is no difference between stockholder and shareholder. The terms
are used interchangeably. Both terms mean the owner of shares of stock
in a corporation and a part owner of a corporation.

What is the difference between net

income and comprehensive income?
The difference between net income and comprehensive income is known
as other comprehensive income.
Other comprehensive income includes unrealized gains and losses on
certain investments in securities, foreign currency items, and certain
pension liability adjustments.
Net income is reported on the income statement and is included in the
retained earnings section of stockholders' equity. Other comprehensive
income items are not reported on the income statement, and are included
in the accumulated other comprehensive income section of stockholders'
equity.
The accounting for comprehensive income is provided in the Statement

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of Financial Accounting Standards No. 130, Reporting Comprehensive

Income, available for reading at www.FASB.org/st.

What is the book value per share of

stock?
If a corporation does not have preferred stock outstanding, the book
value per share of stock is a corporation's total amount of stockholders'
equity divided by the number of common shares of stock outstanding on
that date.
For example, if a corporation without preferred stock has stockholders'
equity on December 31 of $12,421,000 and it has 1,000,000 shares of
common stock outstanding on that date, its book value per share is
$12.42.
Keep in mind that the book value per share will not be the same as the
market value per share. One reason is that a corporation's stockholders'
equity is simply the difference between the total amount of assets
reported on the balance sheet and the total amount of liabilities reported.
Long term assets are generally reported at original cost less accumulated
depreciation and some valuable assets such as trade names might not be
listed on the balance sheet.

What is capital surplus?

In the past, capital surplus was used to describe what is now referred to
as paid-in capital in excess of par.

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For example, when a corporation issues shares of its common stock and
receives more than the par value of the stock, two accounts are involved:
1) the account Common Stock is used to record the par value of the
shares being issued, and 2) the amount that is greater than the par value
is recorded in an account entitled Paid-in Capital in Excess of Par
Common Stock, or Premium on Common Stock.
Many years ago, the account Paid-in Capital in Excess of Par
Common Stock and the account Premium on Common Stock were
referred to as capital surplus.

What is the meaning of equity?

Equity is used in accounting in several ways. Often the word equity is
used when referring to an ownership interest in a business. Examples
include stockholders' equity or owner's equity.
Occasionally, equity is used to mean the combination of liabilities and
owner's equity. For example, some restate the basic accounting equation
from Assets = Liabilities + Owner's Equity to Assets = Equities.
Equity is also used to indicate an owner's interest in a personal asset.
The owner of a $200,000 house that has an $80,000 mortgage loan is
said to have $120,000 of equity in the house.
Outside of accounting, the word equity is also used to indicate fairness
or justice.

What is the definition of capital

market?

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Often, capital market refers to the structured market for trading stocks
and bonds. Examples are the New York Stock Exchange, the American
Stock Exchange, NASDAQ, and the New York Bond Exchange.
However, capital market can also include less structured markets such as
private placements for stocks, bonds, and other debt.

What is callable stock?

Callable stock is an ownership interest in a corporation that can be
"called-in" by the corporation at a specified price.
For example, a corporation might issue 9% $100 Preferred Stock. The
stock agreement (indenture) states that the stock is callable by the
corporation after three years at $109 per share plus any accrued interest.
If in the fourth year, market interest rates decline to say 7%, the
corporation can call-in the preferred stock by paying the call price of
$109 plus any accrued interest.
The callable feature allows the corporation to get out of the preferred
stock agreement requiring it to pay 9% interest. In turn, the stockholders
will be deprived of receiving the 9% interest in a 7% market. The call
price has the effect of limiting how high the market value of preferred
stock will rise.

What is the meaning of arrears?

In accounting we use the word arrears in at least two ways. One use
involves the omitted dividends on cumulative preferred stock. For
example, if a corporation has cumulative preferred stock and due to a

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shortage of cash decides to omit the dividend on those preferred shares,

the preferred dividend is in arrears. The result of having these dividends
in arrears is that the owners of the common stock cannot receive a
dividend until the preferred stock's dividends in arrears are paid and the
preferred stock's current year dividend is also paid. Having dividends in
arrears also requires a disclosure in the notes to the financial statements.
Arrears is also used in the context of annuities. When an annuity's equal
payments occur at the end of each period, the annuity is said to be an
annuity in arrears or an ordinary annuity.
Arrears is also used to simply mean past due, or behind in payments.

How do cash dividends affect the

financial statements?
When a corporation declares a cash dividend on its stock, its retained
earnings are decreased and its current liabilities (Dividends Payable) are
increased. When the cash dividend is paid, the Dividends Payable
account is decreased and the corporation's Cash account is decreased.
The net result of the declaration and payment of the dividend is that the
corporation's assets and stockholders' equity have decreased.
Specifically, the balance sheet accounts Cash and Retained Earnings
were decreased.
The income statement is not affected by the declaration and payment of
cash dividends on common stock. (The cash dividends on preferred
stock are deducted from net income to arrive at net income available for
common stock.)

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The cash dividends will be reported as a use of cash in the financing

activities section of the statement of cash flows.

What is the difference between

dividends and interest expense?
Dividends are a distribution of a corporation's earnings to its
stockholders. Dividends are not an expense of the corporation and,
therefore, dividends do not reduce the corporation's net income or its
taxable income. When a dividend of $100,000 is declared and paid, the
corporation's cash is reduced by $100,000 and its retained earnings (part
of stockholders' equity) is reduced by $100,000.
Interest on bonds and other debt is an expense of the corporation. The
interest expense will reduce the corporation's net income and its taxable
income. When interest expense occurs and is paid, the corporation's cash
is reduced by the interest payment, but some cash will be saved by the
reduction in income taxes. The corporation's retained earnings will also
be reduced by less than the amount of interest expense. For example, if a
corporation has an incremental tax rate of 40%, interest expense of
$100,000 will result in $40,000 less in income tax expense and income
tax payments. This means that an interest payment of $100,000 will
reduce the corporation's cash and retained earnings by the net amount of
$60,000 ($100,000 of interest minus $40,000 of tax savings).
Since interest is formally promised to the lenders, accountants must
accrue interest expense and the related liability Interest Payable. If the
payment for interest is not made, the corporation will face legal
consequences.
Dividends on common stock are not legally required. Therefore, if the
corporation does not declare a dividend there is no liability for the

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omitted dividends.

What is premium on common stock?

The premium on common stock involves the amount the issuing
corporation receives when it issues common stock having a par value.
The premium on common stock is the dollar amount that is in excess of
the common stock's par value.
To illustrate the premium on common stock, let's assume that a
corporation issues one share of its common stock having a par value of
$0.10 per share. If the corporation receives $20 in exchange for the
share, $19.90 will be recorded as the premium on common stock.
Accounting textbooks often refer to the premium on common stock as
paid-in capital in excess of par valuecommon stock or as contributed
capital in excess of par valuecommon stock.

What are the journal entries for a

stock split?
The only journal entry needed for a stock split is a memo entry to note
that the number of shares has changed and that the par value per share
has changed (if the stock has a par value). However, a typical journal
entry with debits and credits is not needed since the total dollar amounts
for the par value and other components of paid-in capital and
stockholders' equity do not change.
For example, if a corporation has 100,000 shares of $1.00 par value
stock and it declares a 2-for-1 stock split, the corporation will have

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200,000 shares with a par value of $0.50 per share. Before and after the
stock split, the total par value is $100,000. Other account balances
within stockholders' equity also remain the same.

Where is treasury stock reported on

the balance sheet?
Under the cost method of recording treasury stock, the cost of treasury
stock is reported at the end of the Stockholders' Equity section of the
balance sheet. Treasury stock will be a deduction from the amounts in
Stockholders' Equity.
Treasury stock is the result of a corporation repurchasing its own stock
and holding those shares instead of retiring them.
In the general ledger there will be an account Treasury Stock with a debit
balance. (At the time of the purchase of treasury stock, the corporation
will debit the account Treasury Stock and will credit the account Cash.)

What is "deficit" appearing in

stockholders' equity?
The term deficit is used instead of retained earnings when the retained
earnings is a negative amount.

What is preferred stock?

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Preferred stock is a type of capital stock issued by some corporations.

Preferred stock is also known as preference stock.
The word "preferred" refers to the dividends paid by the corporation.
Each year, the holders of the preferred stock are to receive their
dividends before the common stockholders are to receive any dividend.
In exchange for this preferential treatment for dividends, the preferred
stockholders (or shareholders) generally will never receive more than the
stated dividend. For example, the holder of 100 shares of a corporation's
8% $100 par preferred stock will receive annual dividends of $800 (8%
X $100 = $8 per share X 100 shares) before the common stockholders
are allowed to receive any cash dividends for the year. Unless the
preferred stock has a participating feature, this preferred stockholder will
never receive more than $8 per share no matter how successful the
corporation becomes.
The features of preferred stocks can vary. Examples include cumulative,
convertible, callable, participating, and more.
Since the dividend on preferred stock is usually a fixed amount forever,
once the preferred stock is issued its market value is likely to move in
the opposite direction of inflation. The higher the rate of inflation, the
less valuable is the fixed dividend amount. If the inflation rate declines,
the value of the preferred stock is likely to increase, but no higher than
the stock's call price.
Most corporations do not issue preferred stock. Typically, corporations
will issue only common stock and use debt.

What is the cost of capital?

The cost of capital is the weighted-average, after-tax cost of a
corporation's long-term debt, preferred stock, and the stockholders'

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equity associated with common stock. The cost of capital is a percentage

and it is often used to compute the net present value of the cash flows in
a proposed investment. It is also considered to be the minimum after-tax
internal rate of return to be earned on new investments.
For a profitable corporation, the costs of bonds and other long-term
loans are usually the least expensive components of the cost of capital.
One reason is that the interest will be deductible for U.S. income taxes.
For example, a corporation paying 6% on its loans may have an after-tax
cost of 4% when its combined federal and state income tax rate is 33%.
On the other hand, the dividends paid on the corporation's preferred and
common stock are not tax deductible.
The cost of common stock (paid-in capital and retained earnings) is
considered to be the most expensive component of the cost of capital
because of the risks involved.
Let's compute the cost of capital by assuming that a corporation has $40
million of long-term debt with an after-tax cost of 4%, $10 million of
7% preferred stock, and $50 million of common stock and retained
earnings with an estimated cost of 15%. Its weighted-average, after-tax
cost of capital is: ($40 million X 4% = $1.6 million) + ($10 million X
7% = $0.7 million) + ($50 million X 15% = $7.5 million) = $9.8 million
divided by $100 million = 9.8%.

Do corporations issue both common

stock and preferred stock?
Some corporations issue both common stock and preferred stock.
However, most corporations issue only common stock. In other words, it
is necessary that a business corporation issue common stock, but it is

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optional whether the corporation will decide to also issue preferred

stock.
Usually the holders or owners of a corporation's common stock elect the
corporation's directors, vote on significant matters, and enjoy increases
in the value of their shares of common stock when the corporation
becomes successful.
On the other hand, the holders of preferred stock usually receive only a
fixed dividend, which must be paid before the common stock is paid a
dividend. Because of that fixed dividend, the preferred stock will not
increase in value as the corporation becomes increasingly successful.

Which financial statement shows a

corporation's worth?
Not one of the financial statements will show a corporation's worth. The
balance sheet, income statement, statement of cash flows, and
stockholders' equity statement merely provide information to assist
financial experts in forming an opinion of a corporation's worth.
In the past, some people mistakenly thought that a corporation's
stockholders' equity was the corporation's worth. However, stockholders'
equity (or the owner's equity of a proprietorship) is merely the result of
subtracting the reported amount of liabilities from the reported amount
of assets. Since the reported amounts reflect the cost principle and other
accounting principles, the net result cannot be assumed to be the
company's worth.

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What is capital stock?

Capital stock is the combination of a corporation's common stock and
preferred stock (if any).
Common stock is usually the first and only capital stock issued by
corporations. However, some corporations will also issue preferred
stock.
The amount received by the corporation when it issued shares of its
capital stock is reported in the stockholders' equity section of the balance
sheet.

Why is there a large difference

between share value and stockholders'
equity?
There can be many reasons why the market value of a corporation's
stock is much greater than the amount of stockholders' equity reported
on the balance sheet. Let's start by defining stockholders' equity as the
difference between the assets amounts reported on the balance sheet
minus the liability amounts. Next, the accountant's cost principle
requires that only the cost of items purchased can be reported as an
asset. This means that valuable trade names that were never purchased
(but were developed over time) are not reported on the balance sheet.
The same holds for a great management team and an amazing
reputation. The cost principle also means that many long-term assets are
reported at cost (and not at their current higher market value). Many
plant assets are reported at minimal amounts because their costs have
been reduced by the cumulative amount of depreciation taken over the

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years.
Other factors contributing to a high market value might be a
corporation's earnings and dividends that are consistently growing
and/or a special niche for its products or services that is recognized by
the market.
Lastly, a corporation's stockholders' equity may have been reduced from
the purchase of treasury stock at a high cost.

Does the income statement explain the

change in the equity section of a
balance sheet?
The income statement could explain the change in the equity section of a
balance sheet. However, there are likely to be some other explanations as
well.
Here is a list of the items that would cause an increase in the total
amount of a corporation's stockholders' equity:
1. Positive net earnings or net income reported on the corporation's
income statement.
2. Some positive Other Comprehensive income items occurred but they
are not to be reported on the income statement.
3. Additional shares of stock were issued in exchange for cash or other
assets.
4. Donated capital was received.

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Here is a list of items that could cause a decrease in the total amount of a
corporation's stockholders' equity:
1. Negative net earnings or a net loss reported on the corporation's
income statement.
2. Some negative Other Comprehensive Income items occurred but they
are not to be reported the income statement.
3. The corporation declared cash dividends.
To see all of the explanations for the change in the equity section of a
balance sheet, you should review the statement of stockholders' equity.
This financial statement should be issued along with a corporation's
balance sheet, income statement, and statement of cash flows.

What is a dividend and why is it

needed?
A dividend paid by a corporation is a distribution of profits to the owners
of the corporation. The owners of a corporation are known as
stockholders or shareholders. (In a sole proprietorship, the distribution of
profits to the owner is referred to as a draw.)
A corporation's board of directors, which is elected by the stockholders,
decides if a cash dividend is needed. The considerations for paying or
not paying a dividend include the stockholders' wishes, the stock
market's reaction, and the corporation's needs and opportunities for cash
in the present and in the future.

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Where do preferred stocks go on the

P&L?
The amount received from issuing preferred stock is reported on the
balance sheet within the stockholders' equity section.
Only the annual preferred dividend is reported on the income statement.
The annual preferred dividend requirement is subtracted from a
corporation's net income and the remainder is described as the Income
Available for Common Stock.

What is stock?
In accounting there are two common uses of the term stock. One
meaning of stock refers to the goods on hand which is to be sold to
customers. In that situation, stock means inventory.
The term stock is also used to mean the ownership shares of a
corporation. For example, an owner of a corporation will have a stock
certificate which provides evidence of his or her ownership of a
corporation's common stock or preferred stock. The owner of the
corporation's common or preferred stock is known as a stockholder.

What is the difference between stocks

and bonds?
Stocks, or shares of stock, represent an ownership interest in a
corporation. Bonds are a form of long-term debt in which the issuing

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corporation promises to pay the principal amount at a specific date.

Stocks pay dividends to the owners, but only if the corporation declares
a dividend. Dividends are a distribution of a corporation's profits. Bonds
pay interest to the bondholders. Generally, the bond contract requires
that a fixed interest payment be made every six months.
Every corporation has common stock. Some corporations issue preferred
stock in addition to its common stock. Many corporations do not issue
bonds.
The stocks and bonds issued by the largest corporations are often traded
on stock and bond exchanges. Stocks and bonds of smaller corporations
are often held by investors and are never traded on an exchange.

issued share capital

Definition
The total of a companys shares that are held by shareholders. A
company can, at any time, issue new shares up to the full amount
of authorized share capital. Also called subscribed capital, or
subscribed share capital.

Debenture - What is a debenture?

Defintion: A debenture is a medium to long-term debt format that
is used by large companies to borrow money.

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Debentures are the most common form of long-term loans that

can be taken by a company.
Debentures are usually loans that are repayable on a fixed date,
but some debentures are irredeemable securities (these are
sometimes called perpetual debentures).

Most debentures pay a fixed rate of interest. It is required that this

interest is paid prior to dividends being paid to shareholders.
Furthermore, most debentures are secured on the borrowers assets,
although some are not (these can be known as naked or unsecured
debentures most debentures in the USA are unsecured).
Debentures are most often used by large companies to borrow
money

Debenture holders
Debenture holders (investors) do not have any rights to vote in
the company's general meetings of shareholders, but they may
have separate meetings or votes e.g. on changes to the rights
attached to the debentures.

The interest paid to debenture holders is calculated as a charge against

profit in the company's financial statements.
Advantages
The main advantage of debentures to companies is the fact that
they have a lower interest rate than e.g. overdrafts. Also, they are
usually repayable at a date far off in the future.
For an investor, their main advantages are that they are often
easy to sell in stock exchanges and they contain less risk than
e.g. equities.

Convertible vs. non-convertible

There are two types of debentures:
Convertible debentures: Convertible bonds or bonds that can
be converted into equity shares of the issuing company after a

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predetermined period of time. Convertible bonds are more

attractive to investors since the bonds have the ability to convert
and also attractive to companies since they typically have lower
interest rates than non-convertible corporate bonds.
Non-convertible debentures: regular debentures which cannot
be converted into equity shares of the liable company. Since they
are not able to convert, they usually carry higher interest rates
than convertible debentures.

capital reserve

Definition
A resource created by the accumulated capital surplus (not
revenue surplus) of an organization, such as by an upward
revaluation of its assets to reflect their current market value after
appreciation. Allocating such sums to capital reserve means they
are permanently invested and will not be paid as dividends.

What is Capital Redemption Reserve?

Capital Redemption Revere is an reserve created when a company buys
it owns shares which reduces its share capital. This reserve is not
distributable to shareholders and can be used to pay bonus shared issued.

capital redemption reserve

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Definition
A fund which exists both on the financial statements of a
company and also as part of the company's internal accounts. A
business with a capital redemption reserve fund is legally
mandated by the U.S. Securities and Exchange Commission to
make capital redemptions for certain transactions acting as a
hedge against capital reductions.

Read more: http://www.businessdictionary.com/definition/capitalredemption-reserve.html#ixzz1m4HGlVTn

What Is Stock?
A Beginner's Guide to Understanding and Investing
in Stock
To raise money, companies divide themselves into pieces and sell these
pieces, called shares of stock, to investors. Each share of stock is entitled
to a proportional cut of the profits or losses the company generates from
its daily operations.
Getty Images
Shares of Stock Represent Pieces of a Business

Imagine you wanted to start a retail store with members of your family.
You decide you need $100,000 to get the business off the ground so you
incorporate a new company. You divide the company into 1,000 pieces,
or "shares" of stock. (They are called this because each piece of stock is
entitled to a proportional share of the profit or loss). You price each new
share of stock at $100. If you can sell all of the shares to your family

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members, you should have the $100,000 you need (1,000 shares x $100
contributed capital per share = $100,000 cash raised for the company).*
If the store earned $50,000 after taxes during its first year, each share of
stock would be entitled to 1/1,000th of the profit. You'd take $50,000
and divide it by 1,000, resulting in $50.00 earnings per share (or EPS as
it is often called on Wall Street). You could call a meeting of the
company's Board of Directors (these are the people the stockholders
elected to watch over their interest since they couldn't run the business)
and decide to use the money to pay cash dividends, repurchase stock, or
expand the company by reinvesting in the retail store.
At some point, you may decide you want to sell your shares of the
family retailer. If the company is large enough, you could trade on a
stock exchange. That's what is happening when you buy or sell shares of
a company through a stock broker. You are telling the market you are
interested in acquiring or selling shares of a certain company and Wall
Street matches you up with someone and takes fees and commissions for
doing it. Alternatively, shares of stock could be issued to raise millions,
or even billions, of dollars for expansion. When Sam Walton formed
Wal-Mart Stores, Inc., the initial public offering that resulted from him
selling newly created shares of stock in his company gave him enough
cash to pay off most of his debt and fund Wal-Mart's nationwide
expansion.
Shares of Stock on Wall Street Are No Different

It doesn't matter if you invest in shares of stock of multi-billion dollar

conglomerates or tiny publicly traded retailers, when you buy share of
stock, you are purchasing a pro-rata piece of a company. For instance,
McDonald's Corporation has divided itself into 1,079,186,614 shares of
common stock. Over the past twelve months, the company earned net
income of $4,176,452,196.18 so management took that profit and
divided it by the shares outstanding, resulting in earnings per share of
$3.87. Of that, the company's Board of Directors voted to pay $2.20 out
in the form of a cash dividend, leaving $1.67 per share for the company

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to devote to other causes such as expansion, debt reduction, share

repurchases, or whatever else it decides is necessary to produce a good
return for its owners, the stockholders.
The current stock price of McDonald's is $61.66 per share. The stock
market is nothing more than an auction. Individual investors, just like
you, are making decisions with their own money in a real-time auction.
If someone wants to sell their shares of McDonald's and there are no
buyers at $61.66, the price would have to continually fall until someone
else stepped in and placed a buy order with their broker. If investors
thought McDonald's was going to grow its profits faster than other
companies, they would be willing to bid up the price of the stock (which
is affected by supply and demand because there are only a fixed amount
of shares in existence, in this case 1,079,186,614 shares). Likewise, if a
large investor were to dump his or her shares on the market, the supply
could temporarily overwhelm the demand and drive the stock price
lower.
Keep Perspective on Stocks and Never Forget What They
Represent

What happens if you believe McDonald's will generate far higher

earnings per share of stock within five years, you buy 1,000 shares at
$61.66 (for a total investment of $61,660), and the very next day, the
stock falls to $30 per share? Should you be upset?
In this situation, you need to remember that the stock market is an
auction. If you still believe the company will generate the earnings per
share you calculated several years from now, to be upset that the stock
price got cheaper would be, in the words of the legendary Benjamin
Graham, to allow yourself to get upset by "other peoples' mistakes in
judgment". The share price may move around wildly as millions of
investors throughout the world make decisions about how much they are
willing to pay, but the ultimate value of your shares will come from the
profit the company generates.

SABBIR AHMMED SOHEL

SABBIR.MLM@GMAIL.COM

If McDonald's did reach, say, $8 in per share earnings within five years,
and kept the same dividend policy, your shares would collect $4.55 in
cash dividends each year. That means you'd be earning 15.17% in cash
dividend yield on the stock you purchased when it fell to $30 per share.
This is why you see many successful investors completely unemotional
about stock market crashes; they view the events as nothing more than
the opportunity to buy a greater stake in businesses they like that
generate lots of cash.
More Information About Investing in Stocks

For more information about investing in stocks, read Complete

Beginner's Guide to Investing in Stock.
* Footnote: These days, due to changes in state laws, most startups and
private businesses are likely to opt to issue units, instead of shares,
because they prefer the limited liability company structure.

Authorised capital
The authorised capital of a company (sometimes referred to as the
authorised share capital, registered capital or nominal capital,
particularly in the United States) is the maximum amount of share
capital that the company is authorised by its constitutional documents to
issue (allocate) to shareholders. Part of the authorised capital can (and
frequently does) remain unissued. This number can be changed by
shareholders' approval. The part of the authorised capital which has been
issued to shareholders is referred to as the issued share capital of the
company.
In the United Kingdom, the concept of authorised share capital was
abolished under the Companies Act 2006.[1]

SABBIR AHMMED SOHEL

SABBIR.MLM@GMAIL.COM

authorized share capital

Definition
The maximum value of securities that a company can legally issue. This
number is specified in the memorandum of association (or articles of
incorporation in the US) when a company is incorporated, but can be
changed later with shareholders' approval.
Authorized share capital may be divided into (1) Issued capital: par
value of the shares actually issued. (2) Paid up capital: money received
from the shareholders in exchange for shares. (3) Uncalled capital:
money remaining unpaid by the shareholders for the shares they have
bought. Also called authorized capital, authorized stock, nominal capital,
nominal share capital, or registered capital.

Share forfeiture
Share forfeiture is the process by which the directors of a company
cancel the power of shareholder if he does not pay his call money when
the company demands for it. Company will give 14 days' notice; after 14
days if shareholder does not pay then company will forfeit his shares and

SABBIR AHMMED SOHEL

SABBIR.MLM@GMAIL.COM

cut off his name from the register of shareholder. Company will not pay
his received funds from shareholder. In order to do a share forfeiture the
Articles of Association of the company should contain provision for that.
Suppose Mr. A buys 100 shares of a company but for the time being the
company asks him to pay only 50% amount. The company makes a deal
with Mr. A that whenever needed the rest of the money will be asked for.
Now some months later when the company asks for the remaining 50%
amount, Mr. A says that he is incapable of paying. The company gives
him some more time to pay but he still can't pay. So the company seizes
his shares and he no longer remains a shareholder of the company! He
even loses the 50% amount that he had paid. This seizure of shares is
called share forfeiture. But as explained above, share forfeiture rules
have to be mentioned in the company's Articles of Association
compulsorily.

What Is Share Forfeiture?

Share forfeiture is a phenomenon in which an investor fails to honor all
commitments connected with the ownership of stock issued by a
particular company. When those commitments are not settled in full
within the time frame allowed, the issuer of the shares has the right to
cancel all ownership privileges extended to the investor, including the
right to collect dividend payments. Unless the situation is corrected, the
shares are forfeited and the name of the investor is removed from the
shareholder register maintained by the issuer.
The possibility of share forfeiture occurs when an investor fails to
comply with specific responsibilities outlined in the contract governing
the original purchase of those shares. One common example is the
failure of the shareholder to tender what is known as call money to the
issuer of the stocks. Call money is money that is borrowed to manage

SABBIR AHMMED SOHEL

SABBIR.MLM@GMAIL.COM

short-term investments and may be demanded by the issuer under certain

circumstances. If the investor does not tender the money within the time
frame allotted, usually 14 calendar days, then the company has the right
to take back the investors shares.
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Specific criteria must be met before a share forfeiture can be processed.
Unless the conditions surrounding the forfeiture are in full compliance
with the conditions set forth in the bylaws and founding documents of
the issuer, taking away the investor shares may be impossible. In
addition, the forfeiture must result in some sort of definite benefit to the
issuer. As a final requirement, the share forfeiture cannot proceed unless
the issue has made what is considered a reasonable effort to resolve the
problem with the investor. Depending on the reasons behind the failure
to comply, it is often within the discretionary powers of the issuer to
create some sort of alternative solution that does allow the investor to
retain the shares, possibly by allowing upcoming dividends to be utilized
as payment of the call money.
Share forfeiture is often a serious loss for the investor. Once the
forfeiture is processed and the shares are taken away, the opportunity to
receive any further dividend payments is invalidated. Depending on the
laws that prevail in the jurisdiction in which the issuer is based, the
investor may or may not receive some sort of final compensation for
those forfeited shares. In some nations, the investor will receive nothing
other than a formal notification that the forfeiture is complete and
advising that the investor no longer has any claim on the shares or any of
the benefits connected with the stock.