Issuance of Stock

Question 1

Common stock

Answer 1

Common stock is a security that represents ownership in a corporation. Holders of common stock excercise control by electing a board of directors and voting in corporate policy.

Question 2

Who has the lowest priority in the ownership structure

Answer 2

Common stockholders have the lowest priority in the ownership structure. In the event of liquidation, common stockholders have rights to company assets only AFTER bond holders, preferred stockholders, and other debt holders have been paid in full.

Question 3

Preferred stock

Answer 3

Preferred stock is a security that represents ownership in a corporation. Preferred stock does NOT always have voting rights. Shares of stock are preferred if their holders are:
1. entitled to receive payment of dividends BEFORE any payment of dividends to another class of stockholders; OR
2.entitled, in the event of liquidation or dissolution, to receive any payments or distributions BEFORE another class of stockholders.

Question 4

Authorized shares

Answer 4

the maximum number of shares that a corporation is legally permitted to issue under its articles of incorporation. In order to increase the amount of authorized shares, the articles of incorporation must be amended with a majority vote from the directors and shareholders.

Question 5

Outstanding shares

Answer 5

The total number of shares issued by the corporation and held by the shareholders. Generally, each outstanding share is entitled to one vote, UNLESS otherwise provides in the articles of incorporation

Question 6

Treasury stock

Answer 6

Consists of shares that a company issued and subsequently reacquired.

Shares that the corporation reacquired are NOT considered outstanding and CANNOT be counted in a shareholder vote.

Question 7

Preemptive rights

Answer 7

A right of a current stockholder to purchase additional shares in the corporation before outsiders are permitted to do so in order to maintain their percentage of ownership in the corporation.

In most states, preemptive rights must be expressely included in the articles of incorporation.

Question 8

Unless otherwise set forth in the articles, preemptive rights do NOT exist for:

Answer 8

1. preferred shares that CANNOT be converted to common stock
2. shares sold for a consideration other than cash; OR
3. shares issued by a majority shareholdrer vote to directors, officers, or employees

Question 9

Do shareholders have a right to receive distributions?

Answer 9

Unless otherwise set forth in the articles of incorporation, a shareholder does NOT have any right to receive distributions (whether in the form of dividends or otherwise) from the corporation.

Dividends and distributions are generally paid to shareholders at the full discretion of the board of directors.

Question 10

Consideration in exchange for shares

Answer 10

The board of directors may authorize issuance of shares for consideration of ANY tangible property or benefit to the corporation.

Absent bad faith, the judgment of the board as tothe consideration received is conclusive.