b. “Shareholders of corporate stock may have claims to a company’s assets and income.” Discuss and...

b. “Shareholders of corporate stock may have claims to a company’s assets and income.” Discuss and analyse this quote.

Expert Solution

If we consider the Corporate stockholders , there are preference shareholders and common share holders.

Both the types of stockholders have claims to the company's assets and income.

Preference shareholders get a fixed dividend as share of company's income and the right of dividend preference shareholders is settled before paying dividends to common stockholders. The Common stockholders get a share of company's income in the form of dividend or in the form of share price appreciation.

However, the Preference stock holders get dividend only when there is available income and cash for dividend payment. For Common stock holders the dividend payment depends on the availability of surplus income after paying preference dividend as well as on the dividend policy of the company. Company is not legally bound to pay common stock dividend every year.

Both the types of shareholders have cliams on company's asset . In case of liquidation of company, the creditors have the first right to assets , followed by Bond holders, and then Preference shareholders. The claim of Common shareholders comes at the last in the sequence.

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