Common Stock

The term common stock has no precise meaning. It usually is applied to stock that has no special preference either in dividends or in bankruptcy. A description of the common stock of Anheuser-Busch in 1996 is presented below.

ANHEUSER-BUSCH Common Stock and Other Shareholders' Equity December 31,1999 (in millions)

Common stock, $1 par value, authorized 1.6 billion shares, issued 716.1 million shares Capital in excess of par value Retained earnings Treasury stock, at cost Other

ESOP debt guarantee Foreign currency translation adjustment Total Equity

Par and No-Par Stock

Owners of common stock in a corporation are referred to as shareholders or stockholders. They receive stock certificates for the shares they own. There is usually a stated value on each stock certificate called the par value. However, some stocks have no-par value. The par value of each share of the common stock of Anheuser-Busch is $1.

The total par value is the number of shares issued multiplied by the par value of each share and is sometimes referred to as the dedicated capital of a corporation. The dedicated capital of Anheuser-Busch is $1 X 716.1 million shares = $716.1 million.

Ross-Westerfield-Jaffe: IV. Capital Structure and Corporate Finance, Sixth Dividend Policy Edition

14. Long-Term Financing: An Introduction

© The McGraw-Hill Companies, 2002

Part IV Capital Structure and Dividend Policy

Authorized versus Issued Common Stock

Shares of common stock are the fundamental ownership units of the corporation. The articles of incorporation of a new corporation must state the number of shares of common stock the corporation is authorized to issue.

The board of directors of the corporation, after a vote of the shareholders, can amend the articles of incorporation to increase the number of shares authorized; there is no limit to the number of shares that can be authorized. In 1999 Anheuser-Busch had authorized 1.6 billion shares and had issued 716.1 million shares. There is no requirement that all of the authorized shares actually be issued. Although there are no legal limits to authorizing shares of stock, some practical considerations may exist:

1. Some states impose taxes based on the number of authorized shares.

2. Authorizing a large number of shares may create concern on the part of investors, because authorized shares can be issued later with the approval of the board of directors but without a vote of the shareholders.

Capital Surplus

Capital surplus usually refers to amounts of directly contributed equity capital in excess of the par value.

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