Final answer:
When issuing different classes of shares, a company must clearly distinguish the rights for each class of stock. These rights may include voting powers, dividend distributions, and liquidation preferences, impacting the company's structure and shareholder relations. The Correct Answer is Option B.
Step-by-step explanation:
When a company issues different classes of shares, it must distinguish the rights for each class of stock. This means it needs to specify the voting rights, dividend rights, and liquidation preferences that pertain to each class. This distinction is essential because it defines the relationship between the company and its shareholders and outlines the hierarchy of rights among them. For instance, some classes of stock may have more voting power, or priority in receiving dividends, or asset distribution upon liquidation, compared to other classes.
Issuing stock is a crucial decision for a firm's financial strategy, and it involves shifting from private control to public ownership. When a company goes public, it means they're selling off company ownership to the public and the firm becomes responsible to a board of directors and the shareholders. This is an alternative to other forms of raising financial capital, such as borrowing from a bank or issuing bonds, which have different implications for firm control and financial obligations.