Lesson: 53

Topic: Types of Corporations and Classes of Shares

Objectives:

Students will come to understand the various types of corporations. Types or corporations examined will include:

• public,
• private, and
• not-for-profit).

In addition, students will come to understand the various classes of shares. Classes of shares examined will include:

• common,
• preferred,
  • dividend preferred,
  • convertible preferred,
  • redeemable and retractable preferred,
• voting.

Students will also come to understand the following concepts related to corporate shares:

• board of directors (elected
• annual meeting
• pre-emptive right (keep the same % of ownership if new shares are issued; very rare)
• contributed capital
• contributed capital in excess of par / stated value
• residual claim (upon liquidation, claim to remaining corporate assets after creditors are paid)
• retained earnings (cumulative net income of corporation that has not been distributed to shareholders)

Finally, students will learn how:

• stock can be exchanged for non-cash assets like land, or to pay for services, and
• stock can be repurchased (reacquired) by the issuing firm and either:
  • retired and returned to unissued shares, or
  • held as treasury stock. (Note: Treasury shares are not common in Canada, as most articles of incorporation do not allow corporations to hold shares in treasury.)

Method of Instruction and Evaluation Exercise:

Presentation:

Students will form into small groups in order to examine a particular type of share. The groups will then prepare a quick PowerPoint presentation on their type of share and present it to the class. Students can consult the following PowerPoint in order to get a grounding for their type of share: Corporations: Organization and Share Capital Transactions. Students may also explore the web to gather more details or even real-life examples of their style of share.

 

Group	Type of Share
1	preferred versus common
2	cumulative
3	convertible
4	redeemable versus retractable
5	treasury

This is a quick summative presentation, so be sure to examine the marking rubric!

	E13-4 (Record issue and reaquisition of shares.)
	This exercise will be taken up in class and students will compare their work with the exemplar. Students will then discuss any points of confusion with the teacher and with each other, and students will make any necessary corrections to their work.

Expectations Addressed:

The expectations addressed by this lesson have been highlighted below.

Strand 3: Partnerships and Corporations

Partnerships

By the end of this course, students will:

– explain the differences between limited and general partnerships;
– record transactions relating to partnerships, including formation, admission of a new partner, retirement of a current partner, and dissolution;
– record the distribution of income among partners;
– prepare the partnership equity section of the balance sheet.

Corporations

By the end of this course, students will:

– describe types of corporations (e.g., public, private, not-for-profit) and classes of shares (e.g., common, preferred, voting);
– record transactions related to common and preferred stocks (e.g., issue, buy back, subscriptions);
– record transactions related to the declaration and distribution of dividends;
– compare the impact of various forms of dividend distribution (e.g., cash dividends, stock dividends, stock splits) on shareholders’ equity;
– prepare the financial statements for a corporation, including an income statement, a statement of retained earnings, and the shareholders’ equity section of the balance sheet.

References:

• Text, chapter #14, pages 652, 656-663-
• PowerPoint: Corporations: Organization and Share Capital Transactions
• Edited PowerPoints:
  • Chapter 14
  • Chapter 15