Issuance of Stock (FP #2)

Question 1

What’s it called when corporation borrows money or raises stock?

Answer 1

Issuing a security

Question 2

What is a debt security/bond?

Answer 2

Issuance by corporation when it borrows money from creditor

Question 3

Debt obligations may be payable to __________ or ________.

Answer 3

Bond holder (bearer/coupon bond)
OR
owner registered on corporate records (registered bond)

Question 4

What types of shares can corporation have?

Answer 4

1) authorized
2) issued and outstanding
3) authorized but unissued/treasury

Question 5

What are equity securities?

Answer 5

Stock

Question 6

What are authorized shares?

Answer 6

shares described in AofInc

Question 7

What are issued and outstanding shares?

Answer 7

shares that’ve been sold

Question 8

What are authorized but unissued shares (also called treasury shares)?

Answer 8

shares reacquired by corporation via repurchase or redemption

Question 9

What are common shares?

Answer 9

shares that give holder equal ownership right

Question 10

What is a share option?

Answer 10

right to purchase shares in future under terms predetermined by Board

Question 11

What is an issuance of stock?

Answer 11

when corporation sells its stock

Question 12

What are subscriptions?

Answer 12

written offers to but stock from a corporation

Question 13

Per MBCA, pre-incorporation subscriptions are irrevocable for _____ UNLESS _____ or _____.

Answer 13

6 months unless otherwise provided in terms of subscription agreement or unless all subscribers consent to revocation

Question 14

When is payment due for a pre-incorporation subscription?

Answer 14

Upon demand by Board

Question 15

Post-incorporation subscriptions are revocable until _____.

Answer 15

Accepted by the corporation

Question 16

What consideration required for corporation when stock issued?

Answer 16

Any tangible OR intangible property OR benefit to the corporation

Question 17

What does “no par” mean?

Answer 17

No minimum issuance price

Question 17

What is par value?

Answer 17

Minimum issuance price (traditional view)

Question 18

What is watered stock?

Answer 18

Par value stock issued for less than par value

Question 19

What is the MBCA approach to stock now?

Answer 19

Board determines value (i.e., whatever consideration they deem appropriate)

Question 20

When is Board’s stock valuation conclusive?

Answer 20

When made in good faith

Question 21

What is a preemptive right?

Answer 21

Right of existing shareholder of common stock to maintain ownership % whenever new issuance of stock for $ (money)

Question 22

Preemptive rights must be ____.

Answer 22

Stated in Articles of Incorporation

Question 23

Limitations on preemptive rights?

Answer 23

Shareholders usually have no preemptive rights if shares issued:
1) for non-cash consideration
2) within 6 mos. after incorporation
OR
3) without voting rights but having a distribution preference