Stocks and Shares 1: Intro

Capital Stock

The capital stock of a corporation is the portion of the corporation's paid-in capital that represents the total par value of shares issued to the stockholders (par value stock) or total consideration received for the issuance (no-par value stock.)

Authorized Capital Stock

Amount of capital stock fixed in the articles of incorporation. It applies only to par value stock. The corporation can't increase its authorized capital stock without first amending the articles of incorporation because it is the maximum stock a corporation can issue.

Subscribed Capital Stock

Portion of the authorized capital stock that has been subscribed but not yet fully paid for (and consequently not yet issued.)

Paid-in Capital

Addition to the capital stock. This consists of donated capital, paid-in capital from treasury stocks and premium on capital stock (excess above the par value.)

Retained Earnings

Accumulated earnings/profits from previous periods. They represent the corporation's earned surplus from years of operation. This includes any capital adjustment and forms a separate component of the stockholders' equity. They don't form part of legal capital. There are 2 kinds:

1.) Unappropriated

A.k.a. unrestricted retained earnings. This is the free portion of retained earnings available for distribution as dividends.

2.) Appropriated

A.k.a. restricted retained earnings. These are not available for distribution because they're needed to fulfill legal, contractual or voluntary appropriations (redemption of redeemable shares, bond sinking fund, lawsuits, business expansion, etc.)

Revaluation Increment in Property

Excess of appraised value of permanent assets over their historical cost.

Legal Capital

Portion of paid-in capital from the issuance of stock. This can't be returned to the stockholder while the corporation is still existing because of the "trust fund doctrine." This doctrine mandates that the corporation's assets constitute a fund that the creditors have a right to look for to satisfy their claims. In case of insolvency, the corporation's capital stock as well as its other assets are generally regarded in equity as a trust fund to pay its liabilities and the creditors have a right of priority of payment over the stockholders.

Par vs. No-par

A par-value stock is one whose value is fixed in the articles of incorporation and indicated in the certificate of stock. The purpose is to set the share's minimum issue price. The following corporations are required to issue par value stock only:

1.) Banks

2.) Trust Companies

3.) Insurance Companies

4.) Public Utilities

5.) Building and Loan (not Savings and Loan) Associations

No-par value shares, on the other hand, have no value stated in the certificate of stock. However, it can't be sold for less than Php5.00 per share.