Principles of Finance: Unit 1, Ownership and Control

So how does the ownership and control of a company... work? Well, first there's a Board of Directors. These folks are elected by the common stockholders, and are in charge of deciding whether or not they should raise money, how they should raise money, whether or not they should raise that money Catholic, or... well, you get the picture.

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Transcript

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part of his investment as long as he owns ten

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percent or more of the company Unless he wants to

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resign or is convicted of financial fraud But not if

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he just kills someone Financial regulatory laws air very uptight

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about thieves Not so much about murderers right Well the

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common stock has one key weapon in the protection of

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itself The common stock can vote In fact it is

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the common stock that hires the board decides keep policy

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issues and so on It answers should we raise money

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And oh the laws are extra picky about board control

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when a financing dilutes or could dilute common shareholders That

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is for things like convertible dead or preferred stock Common

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shareholders have specific control over whether or not that's cool

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for the company Two d'oh should we buy x y

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z corporation Or should we sell to google Should we

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Split our stock in one way or another Should we

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serve coffee or tea at the next annual meeting This

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last one's Not technically a financing activity Unless there's a

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boston sized part there are two flavors of voting in

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the land of common stock Cumulative and statutory cumulative just

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kind of somehow sounds cooler It allows teams to join

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forces and pull their votes for target candidates like they

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can pull their votes pick one or two people and

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just elect them If a shareholder has one percent of

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the common shares outstanding of a company and cumulative voting

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is allowed and there are five candidates being elected that

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shareholder can vote effectively five percent of the total shares

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for any one candidate said graphically With blood and guts

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it looks like this cumulative voting helps the little guy

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to have a big presence or at least some say

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in how the company is run With only one percent

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of the shares the little guy can be felt as

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a five percent holder which makes him a relatively major

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player It also encourages boards to rotate seats gradually That

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is if there were seven seats coming up for election

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Well that one percent could feel like seven percent Which

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starts to get dangerous in a contentious board and company

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situation Right Well the other flavour is statutory voting which

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is just boring One share one vote Board members need

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a simple majority to be elected and well that's it

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Okay Say you're a rabble rouser who needs work on

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his putting in short game and mostly wedges from forty

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yards You don't want to slap to the annual meeting

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So you send in your proxy a virtual version of

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you being there with all the boxes filled out your

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an absentee voter in a proxy If it rains and

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you show up at the meeting the proxy forms air

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shredded and you can change your mind when the votes

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are called For Companies like to save money on coffee

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and cookies at the annual so they generally encouraged proxy

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voting by sending out eve i ts and toe asked

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for proxies and that's a proxy solicitation are well those

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solicitations have to first be stamped by the sec for

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the good housekeeping seal of approval I'ii disclosure is done

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properly All issues are vetted clearly and explain if things

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air contentious such that a block of shareholders wants the

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company to sell out to the man or the google

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or whomever than the proxy people legally must file their

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intent with the sec it's literally a crime to not

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do so and for good reason Companies don't want to

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be suddenly blindsided by a takeover that they couldn't prepare

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care for and the registration requirements are high Even the

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bankers advising a dissident group of shareholders must register with

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the sec to avoid the above problems Management's sometimes issues

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nonvoting stock or stock with inferior control writes the infamous

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super voting stock like it might have equal economic participation

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everything but not equal vote arrogant founders think that they

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have better knowledge of the markets than the markets do

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so they want to be able to control the company

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in various high impact conflict laden situations The new york

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times is perhaps the most famous of the disaster supervoting

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situations Supervoting control stock owned by the founding family made

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the company impossible for an outsider to buy for the 00:04:31.383 --> [endTime] last few decades and well here's their stock chart