Articles of Incorporation must be filed with the Secretary of State’s office before a corporation can do business in a state. Articles of Incorporation are legal documents which contain descriptions of the most pertinent information about a company at its formation. This includes a list of board members, the number of shares to be issues, bylaws, business model, facilities and assets, and so forth. Continue reading...
A ‘poison pill’ is a maneuver by a company to make itself less attractive to a hostile takeover. It can be used in an effort to avoid the takeover altogether, or at least to make the takeover more painful for the bidder. One type of poison pill is a “flip-in,” which allows shareholders to buy shares of the company being targeted at a discount, which makes the takeover more expensive and more difficult. Continue reading...
Corporate equity is retained earnings plus common shares outstanding. On a corporate balance sheet, the retained earnings and the outstanding common stock capitalization combined would be considered the corporate equity, also called shareholder’s equity / owner’s equity. Of the total corporate equity, the portion representing common stock equity is only the capital raised through the issuance of shares in an IPO (initial public offering), where payment for those shares was paid to the company. Subsequent trading in those shares does not affect the common stock equity on the company books. Continue reading...
Minority interest is a portion of a company’s stock that is not owned by the parent company, and refers to a type of ownership that generally cannot exert influence over a company’s business decisions. If an outside investor or another company has a less than 50% stake in a company via shares, then they are said to have a minority interest. From an accounting standpoint, only the dividends of a minority interest are counted on a company’s books. If they exert influence over the decision-making, then a percentage of the income may also need to be included. Continue reading...
Junior Securities come last in the pecking order if a company gets liquidated; common stock shares are the most prevalent example. Junior securities are securities such as common stock which would be the last in order to receive any payout if the company were to go bankrupt. Examples of securities which are senior are Preferred Stock and Bonds; senior securities receive service first in the event of company insolvency. Continue reading...
A life estate is often created by an older parent when they sign over the house to their adult children but stipulate that the parent can remain in the house until they pass away. In some estate planning cases, this is the easiest and most advantageous way to transfer property. The resident is called the Life Tenant and the beneficiary is the Remainder Owner. One of the most daunting threats to elderly people is the risk an extended care need. Continue reading...
Articles of Partnership lay out the nature of the agreement entered into by partners in business entity. Also called a ‘partnership agreement,’ articles of partnership plainly describe the nature of the partnership, which partners are General Partners and which are Limited Partners, and other important details. Partnerships can take the form of Limited Liability Partnerships, General Partnerships, and even S Corporations (but those file articles of incorporation instead). Continue reading...
IRS Link to Publication — Found Here The Tax Guide for Small Businesses is a 50-page booklet designed to help small businesses navigate the forms and publications needed to file their taxes. There are many nuances to filing small business taxes, and many kinds of small businesses, so this form comes into use quite often. The Tax Guide for Small Businesses includes instructions and a list of documents and forms which will help small businesses file their taxes. Continue reading...
A good CPA can be a valuable ally. You should find one who works with clients similar to you and who is easy to talk to. Taxes and accounting are a part of nearly every financial instrument and consideration that people will be confronted with in their life. It can be very beneficial to work with a CPA who can advise you properly on the issues that affect you. It can also be detrimental to place too much trust in a CPA who isn’t really an expert in the areas he claims to be. Continue reading...
IRS Link to Form — Found Here The home office expense deduction allows people who work from home to take a tax deduction reflecting the loss of square footage in their home for the purpose of doing business there. The space must be used exclusively for doing business on a regular basis and it must be the principal place of business, not just a place to work outside of the actual office. Many people fail to file for the home office expense deduction because they believe it will be more trouble than its worth or that it may even trigger an IRS audit of their reporting. Continue reading...
IRS Link to Form — Found Here Form 2106 is the long-form way to request deductions for unreimbursed business expenses incurred by an employee in the course of work. This can include professional affiliation dues, continuing education, insurances, vehicle mileage and depreciation, and other possible deductions. Often, employees are not reimbursed for every out-of-pocket expense they incur in the course of their work. This might include wear and tear on a vehicle, professional dues, travel expenses, business meals, and many more items. For any amount to go towards a tax deduction, the itemized unreimbursed expenses must be over 2% of adjusted gross income. Continue reading...
Adjusted Cost Basis (ABC) is the value of an item for tax purposes, adjusted for depreciation and expenditures. Sometimes abbreviated ABC, adjusted cost basis is the valuation of an item for tax purposes; that is, if it is to be bought or sold, what gains or losses would be assigned to it? Some business assets are depreciated on a set schedule, such as equipment. For equipment sold or taken as part of an acquisition a few years after it was purchased, the depreciation factor would reduce the value of the item for tax purposes by perhaps as much as 20% per year. If a company spent significant amounts of money improving a facility, the cost basis of the facility would go up by that amount. Continue reading...
IRS Link to Publication — Found Here Publication 463 discusses common business-related deductions such as travel, entertainment, gift, and vehicle expenses. The guide is meant to explain which expenses are deductible, how to report them, how to prove them, and what to do if you get reimbursed. Business expenses are commonly paid for out-of-pocket by employees and business owners, and many of them are unsure exactly which expenses are tax-deductible. Continue reading...
An earnings recast is a revision of previous earnings reports, in which a company has made different choices with their accounting methodology that they feel are a better representation of their accounts. A common time to do this is after a company has divested itself of a subsidiary, when it will publish recast financial statements from the preceding years that show the company’s performance without the subsidiary being included. Continue reading...
Chapter 10 is a bankruptcy filing available to smaller corporations where they agree to have their management replaced to oversee a restructuring, and they also agree to have their debts repaid within three years. If a company does not have more than $2.5 million in debt, they may be able to file Chapter 10 bankruptcy. The company and its attorney will put together a plan for reorganization and explain how the plan will ensure that the company meet its obligations in the future. Continue reading...
IRS Link to Publication — Found Here This guide is a reference for the tax implications of sales, transfers, barters, exchanges, forfeits, repossession, condemnation and abandonment of property. Where gains or losses are manifested, the guide helps to differentiate between capital gains and ordinary gains, as well as how to figure and report the gains or losses. Often when people sell or dispose of property in various manners there is a question of what the tax implications are, how much of the transaction is taxable, and whether any amount of it can be applied toward tax deductions. This guide, Publication 544, will outline all of the necessary filing forms and reporting practices for almost any kind of sale or disposition of property. Continue reading...
The Federal Unemployment Tax Act was passed in 1939, and it set up trust funds for the purpose of providing unemployment insurance. Businesses, not individuals, are taxed to provide funds for the program. There are 53 state funds (including D.C., Puerto Rico, and the Virgin Islands), 4 federal accounts, and 2 associated with railroad retirement. The Federal Unemployment Tax helps states fund their own unemployment programs. Continue reading...
Institutional investors are corporations, banks, pension funds, mutual funds, and other forms of pooled capital which act as one entity to engage in securities transactions in the best interest of the constituents or company that they represent. Foreign Institutional Investors are those whose company is based in another country. Investments made on behalf of foreign companies, foreign financial institutions, and foreign funds (such as the foreign equivalent of hedge funds, mutual funds, and pension funds) are foreign institutional investments. There are usually reporting requirements for both the foreign government for the county in which the interests are held and for the domestic government of the institutional investor. Continue reading...
When percentages being used to describe a security are very small, basis points are often used to describe the numbers. A Basis Point (bp) is 1/100th of a percent, so 1% = 100 bps. This metric is used when discussing financial instruments for which very small changes in percentages can make a difference. For example, rates on single premium immediate annuities change weekly, and generally only by a few basis points. These small changes can make a difference competitively week-to-week, because a few basis points can translate to thousands of dollars of income over time. Other places where basis points are used include: advisory and management fees, moves in indexes and securities, bonds, and so on. Continue reading...
The "end" value at a specified date in the future of an investment or cash flow. Terminal value is a term used in value calculations looking forward toward the future value of an asset or cash flow, and also in calculations which start with the Terminal Value and depreciate the asset over the intervening years until one arrives at the Present Value. Can be used in calculations regarding a business, an index, a cash flow, or an asset. Horizon Value is a synonym, and is perhaps better suited to describe the way the calculation chooses a time horizon of a specific number of years, but otherwise uses the same numbers in an equation that will estimate the value if the business or index went on growing at the same rate into perpetuity. Continue reading...