Raising Capital Flashcards
How corporations raise capital
borrowing money or raising it by selling stock (or both)
Bonds
Person holding a bond is a creditor!!!!!
debt securities
the corp borrows money from X and agrees to repay her with interest
Stock
Person holding stock is an owner of the corporation and not a creditor
Issuance of stock
when corporation sells its own stock
Subscription
written, signed offer to buy stock from a corporation
Revocation of pre-incorporated subscription
Pre-incorp. will be irrevocable for 6 months
Unless otherwise specified in the agreement
Revocation of post-incorporated subscription
are revocable until accepted by the corporation
When the corporate board accepts the offer and the corporation notifies the subscriber in writing
Will officially become a SH when the subscriber pays for the stock
From of consideration in exchange for issued stock
any tangible or intangible benefit to the corporation
Money, check, discharge of an obligation, property, services already done, promissory notes, future services
Only issue when there is not consideration
Up to Board to determine the value of non-cash consideration - will be conclusive absent fraud
Par value
found in the certificate of formation - can be 0
means the minimum issuance price (the lowest number the corporation can sell for)
Treasury Stock
stock that was previously issued and has been required by the corporation
it will be counted as authorized and issued but not outstanding for voting purposes
will be treated as having no par value
Watered Stock
when stock is sold under the par value by the corporation
Directors will liable for the “water” if they knowingly authorized the issuance
Person who bought the water stock will also be liable- no defense
But if then transferred to a 3P, 3P will not be liable if acted in good faith
*Pre-emptive rights
gives SH the rights to purchase newly issued shares to maintain proportional voting strength.
In TX, SHs of a corporation incorporated on or after Sept. 1, 2003 do not have pre-emptive rights unless they are provided for in the certificate of formation or by agreement.
Shareholders of a corporation incorporated before Sept 1, 2003 have pre-emptive rights unless the certificate of formation provides otherwise.
*What are situations where there are no pre-emptive rights?
no pre-emptive rights when stocks issued in exchange for services or property (only money)
no pre-emptive rights when stock issued to directors, officers, employees,
no pre-emptive rights for shares issued within 6 months of formation
- waiver of pre-emptive rights
shareholder may waive pre-emptive rights
once waived, the waiver is irrevocable if in writing
