Book Opener

The InsideInformation onNonprofitsBeth Richards andJavier Perez founded apolitical watchdoggroup for their region.The organization wasformed as a nonprofitcorporation, andmembers receive aregional magazinecalled The Insider,which reports on localand regional politics.Because of intensepolitical change in theirregion, membershipand the income frommembership duessoared in the first year.Beth and Javier gavethemselves hugebonuses and tooklavish “fact-finding”trips because, as anonprofit corporation,there was no needshow a profit. Are theiractions ethical? Why orwhy not?Corporate FinancingA corporation may seek financing through the sale of stock. Sharesof stock represent a shareholder’s interest in a corporation, and withshares in a corporation come certain rights. Companies may also seekfunding through the sale of bonds, which are notes issued in return formoney borrowed to fund various corporate activities.Types of Stock All public corporations issue common stock; itis the basic form of corporate ownership. Holders of common stockhave voting rights in a corporation—as a group, they elect the corporation’sboard of directors. Common stock sometimes pays dividends , orprofits, to the shareholders based on the corporation’s performance. If thecorporation does well, dividends will be high; if it does poorly, dividendswill be low. Holders of common stock are the last shareholders to bepaid. Common stock is sold on either at par or no-par value basis. Parvalue is the value printed on the stock certificates of some companies.In some states, par value is used as the basis for determining state incorporationtaxes. Because the par value is arbitrary, most corporationsissue no-par value stock.The second type of stock a corporation issues is preferred stock .Holders of preferred stock have no voting rights. However, they do havethe right to receive a fixed dividend. Holders of preferred stock havepriority over holders of common stock; they are the first shareholdersto be paid. There are two types of preferred stock: cumulative andnoncumulative. If the shareholder owns cumulative preferred stock, andthe corporation is unable to pay a dividend on time, it must make upthe payment at a later date. Shareholders owning noncumulative sharesdo not have this right.Stock Purchases Purchasers of stock may buy the stock directlyfrom the corporation or from individual owners of stock. They may buystock personally or through agents called brokers. A broker fills theorder to buy stock in one of two ways. The stock to be purchased maybe traded on a stock exchange. A stock exchange is a continuous publicauction in which stocks are bought and sold. The largest and best-knownstock exchange is the New York Stock Exchange. Other exchangesinclude the Nasdaq Stock Market and the American Stock Exchange, aswell as several regional exchanges. A broker may also purchase stocksover-the-counter, or outside the organized exchanges. Once the stocksare purchased, a stock certificate will be issued.All stock is originally sold by the corporation itself. At the time thecorporation is being organized, the promoters seek subscriptions frominterested persons. These stock subscriptions are contracts to buy stockwhen the corporation completes its organization and is authorized by614 Unit 6: Starting a Business