Text 3 Becoming a Shareholder

A person may become a shareholder by subscribing to the memorandum and having one or more shares allotted to him, or by having shares transferred to him by an existing shareholder, or by applying for shares and having them allotted to him.

The ownership of the corporation is divided into a specified number of shares of common stock, each share representing equal participation in the affairs of the firm. The owners of the company called common shareholders or common stockholders receive certificates of common stock or shares in proportion to their participation in the firm. A man who invests 10 percent of the total capital receives 10 percent of the common shares. Each share entitles its holder to participate in the earnings of the firm in common with their shares. For example when there are 100,000 shares, each share is entitled to one hundred- thousandth of any earning. Also, each share entitles the owner to one vote in the annual stockholders meeting. So, a share is an item of property and normally freely transferable. It gives its holder an interest in the company measured by a sum of money and entitles him to the rights contained in the articles. The value of shares is generally their market price.

Basically, there are three values considered in assessing common stock: book value, market value, and par value. Book value is the difference between the assets of a company and what a company owes (its debts and liabilities) divided by the number of shares of common stock. Market value is the price the shares are selling for on the stock market. Par value is the value the corporation originally printed on each stock certificate.

By pooling together the individual contributions of a large number of stockholders - often hundreds of thousands - a corporation can accumulate immense amounts of capital. It is free of the size limitations of the proprietorship and the partnership and can grow as large as the most efficient production technique requires.

Assignment to text 4:

1. Look through the text and explain the interconnection between the title and subtitles of the text. Suggest your own headline for the text.

2. Read the text and find the sentences which focus on differences in forms of businesses.

3. Find the sentences which describe functions of a board of directors.

4. Read the paragraph about limited liability of stockholders. Try to reduce the paragraph to 2-3 sentences which would explain the notion of limited liability of stockholders.

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