Common and Preferred Shares

The video tutorial explains the concept of shares in a corporation, focusing on common and preferred shares. It covers the reasons for having shares, the process of authorizing them during the formation of a corporation, and the differences between common and preferred shares. Preferred shares offer specific rights to investors, which can include voting rights, dividend preferences, and conversion rights. The tutorial also discusses how these shares are documented in the articles of incorporation and bylaws.

What is the primary purpose of common shares in a corporation?

• To provide voting rights to employees

• To serve as a measurable unit of ownership

• To ensure equal pay for all shareholders

• To limit the number of directors on the board

When are shares typically authorized in a corporation?

• When the company goes public

• After the first year of operation

• When the corporation is being formed

• During the annual general meeting

What distinguishes preferred shares from common shares?

• Preferred shares are only for employees

• Preferred shares have different rights than common shares

• Preferred shares are issued at a higher price

• Preferred shares have no voting rights

Which of the following is a right that preferred shares might have?

• Right to appoint the CEO

• Priority in dividend payments

• Unlimited voting rights

• Exemption from taxes

What is a potential consequence of issuing additional preferred shares?

• Dilution of existing shareholders' ownership

• Increase in the number of board members

• Increase in the company's debt

• Reduction in the company's market value

How can the characteristics of preferred shares be defined?

• In the annual financial report

• Through the company's mission statement

• In the company's bylaws and investor agreements

• By the CEO's discretion

What is a liquidation preference in the context of preferred shares?

• The right to sell shares at any time

• The right to vote on company mergers

• The right to convert shares into bonds

• The right to receive investment back before others in case of liquidation