Issuance

Question 1

Issuance required

Answer 1

1. issuance: when the corporation sells its own stock, usually to raise capital
2. these rules only happen to issuances
   i. only applies when the corporation is selling the stock
   ii. does not apply to resales

Question 2

Subscriptions

Answer 2

1. subscription: written offers to buy stock from the corporation
2. pre-incorporation subscriptions are irrevocable for 6 months (unless all subscribers agree or subscription says otherwise)
   i. i.e. subscriber cannot revoke their offer to buy for 6 months
3. post-incorporation subscriptions are revocable until acceptance

Question 3

Valid consideration

Answer 3

1. corporation must receive consideration for its stock
2. every state accepts as consideration:
   i. money (cash or check)
   ii. tangible or intangible property
   iii. services already performed for the corporation (past consideration)
3. some states also accept (split authority)
   i. promissory notes
   ii. promises to do future services
4. using invalid consideration results in unpaid stock (treated as watered)

Question 4

Amount of consideration

Answer 4

1. par value means the minimum issuance price
   i. no par means no minimum issuance price
2. treasury stock: stock the company issued and then reacquired
   i. considered authorized but unissued
   ii. corporation can resell treasury stock at any issuance price it wants
3. if the corporation issues stock in exchange for property or past services, BoD determines the value of the property or service
   i. BoD valuation is conclusive if made in good faith

Question 5

Watered stock

Answer 5

1. bar: if par value given, watch out for watered stock
2. water: the shortfall to the corporation when stock is issued for less than par value
   i. ex. 100 shares of $3 par sold for $220, $80 water
3. liability for water
   i. the shareholder is always liable
   ii. directors, if they knowingly authorized the issuance
   iii. third party transferees from the buyer only if they knew about the water