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Forms of Business Organizations

Forms of Business Organizations. Sole Proprietorship-natural person merchant General Partnership Limited Partnership and Limited Partnership Divided into Shares Limited Liability Corporation Corporation. Corporations. limited liability of shareholders

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Forms of Business Organizations

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  1. Forms of Business Organizations • Sole Proprietorship-natural person merchant • General Partnership • Limited Partnership and Limited Partnership Divided into Shares • Limited Liability Corporation • Corporation Mugan-Akman 2007

  2. Corporations • limited liability of shareholders • ownership transferred easily-CAPITAL IS DIVIDED INTO SHARES • private and publicly traded • to be traded publicly they should get permission from Capital Markets Board • transition from a privately held corporation to a publicly traded one is called going public, and this first sale of stock to the public is called an initial public offering, or IPO Mugan-Akman 2007

  3. Chairman of the Board Authority Structure Shareholders/ General Assembly Represents the corporation Board of Directors CEO / president Vice President -Sales Vice President -Manufacturing Vice President –Accounting and Finance Vice President -Personnel Secretary Controller (accounting) Treasurer (finance) Mugan-Akman 2007

  4. Terms Related with Capital of Corporations • Share Capital (Registered Capital) • Unpaid Capital (Capital Commitments) • Paid-in Capital • Authorized Capital • Issued Capital • Treasury Stock • Outstanding Capital • Additional Paid-In Capital (share premium) Mugan-Akman 2007

  5. Mugan-Akman 2007

  6. Capital Transactions • Share Capital Increases • In cash • In-kind • Issuing free shares • Conversion of bonds • Stock dividends • Stock Split • Treasury Stocks Mugan-Akman 2007

  7. Convertible Bonds • debt securities that may be converted under preset conditions to common stock of the issuer at the option of the bearer (investor) • conversion methods: • Market price of the stock at the time of conversion (market value approach) • Book value of the bond being converted (book value approach) Mugan-Akman 2007

  8. Stock Dividends • Distribution of stocks proportionately from retained earnings to the shareholders • Purposes • Satisfy the shareholders without cash outflows • Increase the demand for the stocks in the market • Valuation • less than 20-25% of the capital are valued at the market value of the stock and are met from the retained earnings • large stock dividends are declared, for example more than 20-25%, the par value is used to record the transaction Mugan-Akman 2007

  9. Balance Sheet Effects-Stock Dividends Assume management of ZAM Corporation decided to distribute 5% stock dividends from 200.000 shares of TL1 par value each on 11 April 2007. The market value of ZAM Corporation shares wasTL1,50 on 11 April. Mugan-Akman 2007

  10. Balance Sheet Effects-Stock Dividends Assume management of ZAM Corporation decided to distribute 5% stock dividends from 200.000 shares of TL1 par value each on 11 April 2007. The market value of ZAM Corporation shares wasTL1,50 on 11 April. increase by par increase by the difference between par and price- TL 5.000 decrease by 15,000 Mugan-Akman 2007

  11. Stock Split • Issuance of additional stocks by decreasing the par value of the stock proportionately • Stock splits increase the demand for the stocks in the market by decreasing the market price of the stock e.g. effect of the 2 for 1 stock split made by Better-Off Mugan-Akman 2007

  12. Stock Split • Issuance of additional stocks by decreasing the par value of the stock proportionately • Stock splits increase the demand for the stocks in the market by decreasing the market price of the stock e.g. effect of the 2 for 1 stock split made by Better-Off Mugan-Akman 2007

  13. Treasury Stocks • Why? • to improve the market price of the stock • to have available stock to be used in the stock option plans • to have available stocks of planned mergers and acquisitions • to prevent a takeover • to improve Earnings per Share • do not have voting, or dividend rights • do not have a right in the liquidation of the company • Initially recorded at cost (contra equity account) • Recorded at market value at re-issuance • Any gains and losses are reported at the shareholders’ equity Mugan-Akman 2007

  14. Profit Appropriation • 1. 1st Legal Reserves: 5% of net income before taxes (until it reaches 20% of paid-in capital) • 2. 1st dividend to shareholders: 5% of paid-in capital • 3. Other dividends: Dividends to shareholders other than 1st dividends; dividends to board of directors and employees • 4. 2nd Legal Reserves: 10% of dividends declared, excluding 5% 1st dividends • 5. Special Reserves: Appropriation of net income as a special reserve as defined in the Articles of Association • 6. Retained Earnings : Any amount remaining after the above appropriations Mugan-Akman 2007

  15. Retained Earnings-Profit Appropriation • Net Income After Taxes • Less: Legal Reserves (first) • Less: Dividends • 1st dividends to shareholders • 2nd dividends to shareholders • Dividends to board of directors and employees • Less: Legal Reserves (second) • Retained Earnings Mugan-Akman 2007

  16. Statements of Changes in Equity • Primary financial statement • Summarize movements in shareholders’ equity from one accounting period to another Mugan-Akman 2007

  17. Illustration of the Statement of Changes in Equity • During 2008, available for sale instruments of the company had a fair value increase of TL 5.096, and realized TL 1.100 from sale of such instruments. In April 2008, ZAM Corporation decided to increase the share capital from TL 200.000. The new 20.000 shares with a par value of TL10 were sold at TL 18,75 each. Legal reserves from 2007 income was 9.393 whereas dividends declared were 2.807. Net income for 2008 is TL 54.600. ZAM Corporation Partial Balance Sheet 31 December 2008 2007 Shareholders’ Equity Paid-in Capital TL 400.000 TL 200.000 Share Capital 400.000 200.000 Unpaid Capital - - Additional Paid-in Capital 525.088 350.088 Legal Reserves 12.733 3.340 Other Reserves 34.945 30.949 Retained Earnings 102.40060.000 Shareholders’ Equity TL 1.075.166 TL 644.377 Mugan-Akman 2007

  18. ZAM Corporation Statement of Changes in Equity - For The Year 2008 -TL Mugan-Akman 2007

  19. Mugan-Akman 2007

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