MICROBREWS-WITHOUT THE FROTH Accounting Help

Once the total of Walt’ Street, U.S. microbrewery-young companies that produce  global brewery-have lost more titan two-thirds of their market value’ since a pack of then  In late 1995, melanges hive interpolated Investors, Pyramid Breweries, which Painkiller look at $19 on Dec12, 1995, now trad~S at 3. And Pete’s Brewing, taken public at $18 tv Midgley on Nov. 11, 1995, Is at $4. Forever lost causes?  Not to Investment manager Vince Carino’, who sees microbreweries as a prime investment The president of Brookhaven

Capital has acquired shares in several of these pariahs.  which he has taken a 5% stake: Boston Beer (SAM). down to $9 from its initial public offering pill  S2D In November, 1995, and RedHook Ale Brewery (HOOK). down to $6 from its price of $17 in AuUIII, 1995.

Carino expects Boston Beer, which makes such brands as Samuel Adams, Oregon Orillia.  Shot at facilities In lveIIates. wlil be the first to rebound in an Industry that’s now in Cirino0beHlng that Anheuser-Busch, whi.ch owns 25% of RedHook, will move to of the producer of nln8 styles.

Carino speculates that An~euser could make a bid 01$n to $12′ for the Ihlrelit doen’t already Source GeneG. Marcial, HMlcrobrews-Without the.Froth,” Business Week, March 16, 1998. Reprinted by, copyright  1998 by The McGraw-Hili Companies, Inc. Why did the stocks of several specialty breweries lose more than two-thirds of their market less three years? Why did investors initially contribute so much ‘capital to these young companies? What  reported in the financial statements of these companies concerning the capital contributed by investors? What risks do these Investo~s face should the performance of the. brewery stocks cOnlnue to de- .cline? These are some of the important questions addressed we also examine why businesses incorporate, how corporations are formed issues related to the capital contributed by investors in exchange for shares of stock (including factors that influence the market price of a corporation’s stock).

Thus the focus here is primarily on events ted  capital invested by the stockholders of a corporation. This capital, often referred to as paid-in the stockhQlders’ equity section of a corporate  sheet.

CORPORATIONS

The corporate form is the “organization of choice” for many businesses-large and small. The owners of a corporation are called stockholders. In many small corporations, there are only one or two stockholders. But in large corporations, such as IBM and AT&T, there are literally millions.

 A corporation is the only form of business organization recognized under the law as  a legal entity, with rights and responsibilities separate from those of its owners. The as· sets of a corporation belong to the corporation itself, not to the stockholders. The corporation is responsible for its own debts and must pay income taxes on is earnings.

As a separate legal entity, a corporation has staius in court;’ it may enter into contracts, and it may sue and be sued as if it were a person.

The major advantages and disadvantages of this form of business organization are summarized on page 477. What types of businesses choose the corporate form of organization?

The answer, basically, is all kinds. When we think of corporations, we often think of large, well-known companies such ,as Exxon,

General Motors, and Procter & Gamble. Indeed, almost all large businesses are organized as corporations, Limited shareholder liability, transferability of ownership, professional management, and continuity ‘of existence make the corporation the best form ‘of organization for pooling the. resources of a great many equity investors.

Not all corporations, however, are large and publicly owned. Many sntall businesses are organized as corporations. In fact, many corporations have only OM “odholder.

Why Businesses Incorporate Businesses incorporate for many reasons, but the two of greatest importance are

(1) limited shareholder-liability and
(2) transferability of ownership.

Life have previously discussed the concept of limited personalliabUity. This simply 1bat shareholders have no personal liability for the debts of the corporation.

Thus, if the corporation becomes insolvent, the most that a stockholder usually can lose is the amount of his or her equity investment. In this era of multimillion-dollar lawsuits, limited personal liability appeals to the’ owners of large and small businesses alike. Another special feature of the corporation is the transferability of ownership-the idea that ownership is represented by transferable shares of capital stock.

For a small, family-owned business, this provides a convenient means of gradually transferring ownership and control of the business from one generation to the next.

For a large company, if makes ownership of the business a highly liquid investment, which can be purchased arid sold in organized securities exchanges. This liquidity is essential to a large corporation’s ability to raise equity capital from thousands-perhaps millions-of individual investors.There are many other reasons why specific businesses may be organized as corporations we cannot possibly discuss them all.

For example, some states allow an “These securities exchanges include, among others. the New York Stock Exchange, the National Associa of  Dealers’ Automated Quotations (NASI;>AQ).the Tokyo Stock Exchange. andMexico’s Bolsa, Collectively, stock exchanges often are described simply as the stock market, individual or a corporation to own only one liquor license.

A business that needs 10 serve liquor at several different sites, such as a chain of hotels or restaurants, must organize each location as a separate corporation.

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Posted on November 21, 2015 in Stockholders' Equity: Paid-in Capital

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