Issuance Of Stock Flashcards
What are the two types of investment in a company?
Debt (usually bonds)
Equity (company stock)
If an investor holds a corporate bond, what is their relationship to the company?
You are a creditor
If an investor holds corporate stock, what is their relationship to the company?
They are an owner, rather than a creditor of the company.
What is a subscription?
A written offer from the company to buy its stock
Does a subscription include offers from existing shareholders to buy their stock?
No, those rules only apply when the company issues the stock.
In what circumstances can the company revoke its subscription offer to purchase pre-incorporation stock?
Offer irrevocable for 6 months
Unless all scrubbers agree to the revocation
In what circumstances can the company revoke its subscription offer to purchase post-incorporation stock?
Revocable until the corporation accepts the subscription
How can a person pay for their stock?
With any form of tangible or intangible property
What is the amount of consideration a person must pay for the subscription stock?
Common law: par value (minimum issuance price)
Revised Model Business Corporation Act: par value rule eliminates and the Board can issue stock at whatever price
What is Treasury Stock?
Company issues stock and then reacquires it.
Who determines the value of the property or services offered by a person in exchange for company stock?
The Board. Their valuation is conclusion, provided it’s in good faith.
When will the directors be liable to the corporation for issuing watered stock?
Directors knowingly authorised the issuance of watered down stock
Will be purchaser be liable to the corporation for making up to par value watered down stock?
If they were charged with notice of the par value.
Is a third party transferee liable for making stock up to par value if it was issued to an initial purchase at a watered down price?
Not if he/she acts in good faith, meaning they didn’t know about the water.
What is a preemptive right?
The right of an existing Shareholder of common stock to maintain their % of ownership by buying newly issued stock for money.
