Stock and Corporate Securities Flashcards
What is the common stock requirement for corporations?
All corporations must have stock that is entitled to vote on corporate governance and stock tha trepresents the ownership interest of the corporation. RMBCA.
What authorization is required for stock issuance?
Stock issuance must be authorized by board of directors. Some states allow shareholders to authorize stock issuance if articles of incorporation so provide.
Watered Stock
Stock that is issued for less than par value is not addressed by the RMBCA because it is not possible.
Stock Subscription
Prior to incoproration a person subscribes to purchase stock from the corporation when it comes into existence
What is the revocability of a stock subscription?
Pre incorporation subscription is irrevocable for six months unless the subscription agreement provides otherwise or all subscribers agree to it.
What happens when a subscriber does not pay for stock?
- Corporation can pursue normal collection methods.
- Corporation can sell the stock to someone else provided that they made written demand for payment at least 20 days before resale.
When does a shareholder obtain preemptive rights?
- used to automatically have preemptive rights at common law.
- RMBCA explicitly excludes shareholder rights unless the articles of incorporation provide otherwise.
May a shareholder waive his preemptive rights?
Yes. A waiver in writing is irrevocable.
What types of shares do not receive preemptive rights?
- Shares offered as compensation
- Shares authorized in the articles of incorporation and issued w/in 6 mos. of the effective date of incorporation.
- Shares sold for payment other than money.
Are there liabilities for a corporation that does not follow registration requirements?
Yes.
- the purchaser can sue for compensatory damages caused by a material misrepresentation or omission in the the registration statement
- the purchaser may sue to rescind the transaction
Who can authorize a distribution?
Board of directors. But they may delegate the specific amount to a board committee or corporate officer.
When can’t a corporation make a distribution?
If it is insolvent or if the distribution would cause the corporation to become insolvent.
When is a corporation insolvent?
Equity Test - can a corporation pay off its debts in the ordinary course of business?
Balance-sheet test - do a corporation’s assets exceed its total liabilities plus liquidation preferences of senior securities.
When is a corporation’s solvency measured for a dividend distribution?
The date the dividend is declared?
When is a corporation’s solvency measured for a stock purchase?
the date the purchase price is paid.
