Issuance of Stock

Question 1

When do “issuance” issues arise?

Answer 1

Only when a corporation is issuing its own stock (not a third-party like Robinhood)

Question 2

What must the corporation receive when it issues stock (i.e., what “consideration” is necessary)?

Answer 2

Cannot accept less than par value, which is the minimum issuance price

Question 3

Can you issue stock for something other than cash (e.g., property)?

Answer 3

YES–any valid consideration can be received if the Board values the consideration in good faith worth at least par value

Question 4

What is “no par” stock?

Answer 4

There is no minimum issuance price
* Therefore, any valid consideration may be received if deemed adequate by the board

Question 5

What is “treasury stock?”

Answer 5

Stock that was previously issued and has been reacquired by the corporation
* Deemed to be no par stock–any valid consideration may be received if deemed adequate by the board

Question 6

What happens if C issues stock for less than par value?

Answer 6

Directors are personally liable for authorizing a below par issuance

Question 7

If C issues stock for less than par value, can they recover from the purchaser?

Answer 7

YES–stockholders are liable only to pay full consideration for their shares
* Full consideration is at least par value
* So C can sue its own directors OR the buyer for difference between issue price and par

Question 8

What are preemptive rights?

Answer 8

The right of an existing shareholder to maintain their percentage of ownership by buying stock whenever there is a new issuance of stock for cash
* TRICK is issuing stock for property (then no preemptive rights to exercise)
* Can buy her proportion of the newly issued shares

Question 9

What if articles are silent about preemptive rights?

Answer 9

Preemptive rights do NOT exist unless granted in AOI