Issuance of Stock

Question 1

debt securities

Answer 1

• Also known as a bond
• Promise that the corporation will repay the lon with interest
• If unsecured, called debenture
• Holder is a creditor, NOT an owner

Question 2

equity securities

Answer 2

• Also called stock
• Investor buys ownership interest in the corporation
• Shareholder is owner, NOT a creditor

Question 3

Corporation’s Available Shares

Answer 3

• Authorized shares: number of shares set forth in articles
• Issued and outstaning: shares that have been sold
• Authorized but unissued: shares reacquired thru repurchase or redepmtion (aka treasurey shares)

Question 4

Classification of Shares

Answer 4

Common share: equal ownership rights
Classes: shares with different degrees of rights

Question 5

issuance

Answer 5

When a corporation sells its own shares

Question 6

subscription

Answer 6

A written offer to buy stock from a corporation

Pre-incorporation: irrevocable for six months, payment due upon demand by the board

Post-incorporation: revocable until accepted by the corp.

Question 7

What consideration is necessary for stock?

Answer 7

Form: any tangible or intangible property or benefit to the corporation

Amount
* Traditional view: par (minimum price)
* MBCA view: board determines value if consideration other than cash

Question 8

preemptive right

Answer 8

A right of an exisiting shareholder of common stock to maintain percentage of ownership in corporation by buying stock whenever there is a new issuance of stock for money

MBCA: right must be stated in the articles

Limitations
- For consideration other than cash
- Within six months after incorporation
- Without voting rights but having distribution preference