Issuance of Stock Flashcards
Issuance
Corporation selling its own stock
Purpose is to raise capital
NOTE: these flashcards apply only when corp itself is selling its own stock
Debt Securities
when corp borrows funds from outside investors and promises to repay them
NO OWNERSHIP INTEREST in the corporation. Secured by a bond or debenture
May be convertible into equity securities if allowed
Outstanding shares
shares sold out of the authorized lot
Authorized shares
shares described in AOI
Stock Subscription
Promises from subscribers to buy stock in the corporation
Revocability of stock subscriptions
If preincorporation, IRREVOCABLE FOR SIX MONTHS, unless stated otherwise
Post incorporation subscriptions are revocable until accepted
Payment of stock subscriptions
Unless otherwise provided, payment is required upon DEMAND BY THE BOARD
Consideration for stock
Every state agrees that (1) money; (2) tangible/intangible property; and (3) services ALREADY performed for the corp are ALWAYS valid consideration
Some states and RMBCA now allow: (4) promissory notes; and (5) promises for future services as valid consideration
Par
“minimum issuance price” – historically the amount of consideration necessary to be valid. Minimum, thus could certainly receive more than the par.
RMBCA generally has eliminated the concept of par and allows corps to issue shares for whatever consideration BoD deems appropriate
Selling under par
if corp’s articles specify a par value, if directors authorize a sale of stock for less than par value, probably VALIDLY ISSUED, but board will be liable for breach of fiduciary duty
No Par
no minimum issue price – bod sets price
Treasury Stock
stock company issued and then REACQUIRED.
Considered authorized but unissued, and corp can resell at ANY ISSUANCE PRICE it wants
Water
Triggered by a board sale of less than par
the difference in the amount sold and the par price is the “water”
Directors are liable for water if they knowingly authorized the issuance.
Purchaser has no defense because he had notice of the par value. But if transfers to a third party, TP is NOT liable if they did not know about the water
Pre-emptive right
right of an existing SH to maintain their percentage ownership by buying stock whenever there is a new issuance FOR MONEY
NOTE: must have an issuance FOR MONEY to exercise your pre-emptive right (not services, land, etc.)
NOTE: merely an OPTION to exercise, not mandatory
NOTE: split authority about whether treasury stock constitutes a “new issuance”
