2. Issuance of Stock Flashcards
Issuance of stock occurs when
A corporation sells its own stock.
What is a “debenture?”
A loan the repayment of which is not secured by corporate assets.
What is a subscription?
A subscription is a written, signed offer to buy stock from the corporation.
Are pre-incorporation subscriptions revocable?
Only after 3 months UNLESS the subscription provides otherwise or all subscribers agree to let you revoke.
Are post-incorporation subscriptions revocable?
Yes, until accepted by the corporation.
When do the corporation and the subscriber become obligated under a subscription?
When the Board accepts the offer.
Can the corporation decide to sell only to some subscribers and not others?
No, it must be uniform within each class or series of stock.
If the corporation accepts an offer and the subscriber defaults on payment and has paid less than half of the purchase price, what happens?
If he has paid less than half of the purchase price, and fails to pay the rest within 30 days of written demand, the corporation can keep the money paid and cancel the shares. The stock becomes authorized, and unissued. The corporation can then sell it.
If the corporation accepts an offer and the subscriber defaults on payment and has paid at least half of the purchase price, what happens?
If subscriber has paid half or more, and fails to pay the rest within 30 days of written demand, the corporation must try to sell the stock to someone else for cash (or a binding obligation to pay cash). If no one will pay the remaining balance, it is treated the same as if the subscriber paid less than half of the purchase price.
What are the five permitted forms of consideration for an issuance?
- Money
- . Tangible or intangible property
- Services already performed for the corporation
- A binding obligation to pay money or property in the future
- A binding obligation to perform future services having an agreed value.
Can the corporation issue stock to somebody for performing services in forming the corporation?
Yes, this counts as services performed for the corporation.
Par
Par means minimum issuance price.
Treasury Stock
Treasury stock is stock that was previously issued and has been reacquired by the corporation. The corporation may then sell the treasury stock.
What happens if C Corp. issues 10,000 shares of $3 par to X for $22,000?
The corporation (or creditors if the company is insolvent) can sue for the $8,000 of “water.”
Who is liable for the issuance of watered stock?
- The directors if they knowingly authorized the issuance
2. The person that bought the stock (there is no defense because he is charged with notice of par)
