2. Issuance of Stock Flashcards
What is the difference between a debt security and an equity security?
Debt Security
Corp borrows money from X and agrees to pay back with interest; X is a creditor
Equity Security
Corp sells an ownership interest in the company for money; X is a SH
What is an issuance?
Corporation selling its own stock
What is a subscription?
Written offer to buy stock from a corporation
What are the two types of subscription and are they revocable?
Pre-Incorporation Subscription
Irrevocable for up to six months
Post-Incorporation Subscription
Revocable until board accepts the offer
Must stock be issued for money only?
No, stock may be issued for any property or benefit to the corporation
When stock is issued for property or services, who determines the value and is their determination conclusive?
The board; conclusive unless bad faith is shown
What is par stock?
Stock with a minimum selling price
When par stock is sold below its par value, what is it called? How come?
Watered stock; the deficit is called water
When is a buyer of watered stock liable?
Always, strictly
When are directors liable for watered stock?
When they knowingly authorised the issuance
If a buyer of watered stock sells it to a third-party, when is the third-party liable?
If they knew about the water
What is a pre-emptive right, and when does it kick in?
Right of an existing shareholder to maintain her % ownership
Kicks in when new stock is issued for money
Are pre-emptive rights automatic?
No, they must be provided for in the articles
What is treasury stock?
Stock that a company reacquires and resells
Is treasury stock a new issuance?
Yes
