Security Issuance

Question 1

A share is outstanding until what occurs? (4 things)

Answer 1

(1) Reacquisition
(2) Redemption
(3) Conversion
(4) Cancellation

Question 2

When may reacquired shares be reissued?

Answer 2

When authorized by the articles of incorporation

Question 3

What happens to shares that are reacquired but not reissued?

Answer 3

The number of authorized shares is decreased by the number of reacquired shares

Question 4

What are the two types of stock?

Answer 4

(1) Common stock
(2) Preferred stock

Question 5

What benefits do common stock confer on the shareholder?

Answer 5

(1) the right to cast one vote
(2) the right to receive a dividend when declared by the board
(3) A proportional share of the corp’s assets upon dissolution

Question 6

When may a corporation not issue a dividend?

Answer 6

(1) The issuance would make the corp unable to pay its debts; or
(2) The issuance would result in the corp’s assets being less than its liabilities, including contingent and prospective liabilities

Question 7

When is a director personally liable for issuance of a dividend?

Answer 7

When they vote for or assents to a distribution in excess of what may lawfully be distributed

Question 8

What are redemption rights?

Answer 8

A requirement that, if contracted for, the corporation repurchase a stockholder’s shares in the future

Question 9

When are share transfer restrictions enforceable against a transferee?

Answer 9

(1) When the transferee has actual or constructive knowledge of the restriction; and
(2) as long as they are used for a reasonable purpose

Question 10

What are the three types of share transfer restrictions?

Answer 10

(1) Right of First Refusal
(2) Board or Shareholder Approval
(3) Designated Transferees

Question 11

What is a right of first refusal?

Answer 11

Requires the shareholder to offer to sell the shares to the corporation before selling to anyone else

Question 12

When may a board of directors not issue dividends?

Answer 12

(1) It would render the corporation unable to pay its debts as they come due
(2) The distribution would result in the corporation’s assets being less than its liabilities

Question 13

What is an option to buy agreement?

Answer 13

An agreement between between a shareholder and another person (or corporation) giving the right to purchase the shareholder’s shares upon the occurrence of a specified triggering event

Question 14

What is an option to sell agreement?

Answer 14

Gives a shareholder the right to sell his shares to the corporation upon the occurrence of a specified triggering event