Issuance of Stock Flashcards
Do stock holders hold an equity or debt security?
An equity security, which gives them ownership and rights. Bond holders hold a debt security, which makes them a creditor.
What is a subscription?
A written, signed offer to buy stock from a corporation.
May pre-incorporation subscriptions be revoked?
Not for three months, unless the subscription provides otherwise or ALL subscribers approve.
May post-incorporation subscriptions be revoked?
Yes, until accepted by the corporation.
What happens when a subscriber, who has paid less than half of the purchase price, defaults on payment?
If he fails to pay within 30 days of a demand, the corp can keep the money paid and cancel the order (keep and resell the shares)
What happens when a subscriber, who has paid at least half of the purchase price, defaults on payment?
If he fails to pay within 30 days of a demand, the corp must try to sell the stock to someone else for cash. If no new buyer is found, the corp can keep the money and cancel the order. If a new buyer pays more, the subscriber recovers the excess less any costs to the corp in finding the new buyer.
What are the five forms of consideration acceptable for the issuance of stock?
- Money
- Tangible or intangible property
- Services already performed for the corp
- Binding obligation to pay money or property in the future (i.e., a Note)
- Binding obligation to perform future services having an agreed value
What is the difference between par and no par stock?
Par stock - minimum issuance price
No par stock - no minimum price
What is treasury stock?
Stock previously issued and reacquired by the corporation. Treasury stock is not bound by the previous par value, if any.
May property be purchased with par value stock?
Yes, if the value of the property, as determined by the board, is equal to the par value of the stock. The board’s valuation is conclusive unless there si evidence of fraud.
What happens when par value stock is issued at a below par value price?
The corporation or its creditors may sue for the difference. Directors are liable if they knowingly authorized the issuance, and the buyer is liable as he is charged with notice of par. A third party is not liable if he purchased in good faith.
What is a pre-emptive shareholder right?
Right of an existing shareholder to maintain her percentage of ownership by buying stock when there is a new issuance of stock for money.
What stock does not count as a new issuance?
Treasury stock and stock authorized by the original certificate and sold within two years of formation
How are pre-emptive rights created?
Only by way of the Certificate of Incorporation
