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Characteristics of Common and Preferred stock and the rights pertaining to the ownership.
A. Although management controls the corporation on a daily basis, ultimate control of the firm
resides in the hands of the stockholders.
B. Management has become increasingly sensitive to the growing institutional ownership of
common stock. Mutual funds, pension funds, insurance companies and bank trust accounts are
examples of financial institutions that in combination own a large percentage of many leasing
corporation.
C. Common stockholders have a residual claim on the income stream; the amount remaining after
creditors and preferred stockholders have been satisfied belongs to the owners ( common
stockholders ) whether paid in dividend or retained.
D. A corporation may have several classes of common stock that differ in regard to voting rights
and claim on the earnings stream.
E. Owners of common stock have the right to vote on all major issues including election of the
board of directors.
1. Majority voting – holders of majority of stock can elect all direcetors.
2. In some firms different classes of stick are entitled to elect a specified percentage of the
board of directors.
3. Cumulative voting – possible for minority stockholders ( own less than 50 percent of stock )
to elect some of the directors.
a. The stockholder can cast one vote for each share of stock own times the number of
directors to be elected.
b. The following formula may be employed to determine the number of shares needed to
elect a given number of directors under cumulative voting.