Homework chap 11

Question1 :

Explain the separate legal existence.

Solution:

The separate legal existence means the company has a legal existence different from its owners, it
acts under its own name, it may borrow money, sue, be sued, pays its own taxes..

Question 2:

Explain the limited liability of shareholders in a corporation.

Solution:

The limited shareholders’ liability means in case of liquidation, creditors have recourse only to
corporate assets to satisfy their claims: they have no claim on the personal shareholders’ assets =>
shareholders’ liability is limited only to the capital invested in the corporation.

Question 3:

Identify shareholders’ ownership rights.

Solution:

Shareholders have the right to:

 vote in board of directors’ election at the annual meeting => voting right.
 share the corporate earning through receipt of dividend => dividend right.
 keep the same percentage ownership when new shares are issued => preemptive right.
 share in assets upon liquidation in proportion to their holdings => residual claim.

Question 4:

Explain the concept of share’s market price and factors that determine it.

Solution:

The share’s market price is the result of an interaction between buyers and sellers in the stock
market. Many factors determine it such as:

 company’s earnings and dividends;

 others external factors beyond the company’s control: an oil embargo, a new president..

Question 5:

Explain and differentiate par value and no par value shares.

Solution:
Par value shares: ordinary shares to which the chart has assigned a value per share (like a face value).

No par value shares: ordinary shares to which the chart has not assigned a value per share.