stock/corp securities Flashcards
Director
-are selected by the shareholders at the annual shareholders’ meeting if a quorum is present.
Vacancy on BoD
- when there is a vacancy on the board of directors, including a vacancy created by an increase in the number of directors, either the shareholders or the directors may fill the vacancy.
- When the vacancy leaves the board of directors without a quorum, the directors remaining may elect a replacement director by a majority vote.
stock (equity)
- represents ownership in a corp
- common stock
- preferred
debt
- bonds
- loan obligations
stock issuance
- the Board authorizes the issuance of stock
- valid consideration must be given
- board sets the price for which the shares will be issued
par value
- the minimum price for which a corp can issue its shares
- corp is NOT required to designate a par value
- if it does, cannot be issued for less than par value
watered stock
- occurs when corp receives consideration that is worth less than par value
- SH is liable for the difference
no par stock
- stock that does not have a par value
- therefore no minimum issue price for which stock can be issued
treasury stock
-previously issued stock that the corp repurposes is said to be held in the corp’s treasury
payment of consideration
- SH payment of full amount due for shares discharges SH’s liability
- Sh’s liab limited to share ownership
- SH is subject to PCV actions
stock subscriptions
- a person’s promise to purchase shares once corp comes into existence
- merely an offer subject to revocation at any time prior to acceptance
- promise becomes enforceable K once corp is formed and is accepted by corp
pre-emptive rights
- gives current Sh the right to purchase any traditional shares the corp issues
- SH may waive if chooses
- allows SH to maintain their % ownership in the corp
Pre-emptive rights do not apply
- stock issued for service or property
- stock sold or granted as a form of compensation (to directors, etc)
- shares within 6 months of formation
- when preferred shares or non-voting shares are issued
- shares with preemptive rights not acquired within the first year of their offering
Distrubution
- transfer of cash to current SH, usually in the form of dividends
- generally at the board’s discretion as to when and amount
- prohibited when corp is insolvent or paying the dist would cause corp to become insolvent
director liab for unlawful distributions
- Directors involved in approving dist are liable for the portion that exceeds the lawful amount
- all culpable directors are J&S liable
- paying directors have right of contribution from other culpable directors
- director is not liable for an unlawful distribution if the director exercised ordinary care and made a good faith reliance on financial reports and records used to determine the company’s net worth
stock purchases (Redemptions)
- gives Sh right to have corp buy back (redeem) his shares
- triggering even for this is specified in the CoF
debt distributions
-subject to the same insolvency restrictions that pertain to dividend payments
stock dividends
- corp may issue additional shares of stock to existing shareholders= stock dividend or stock split.
- no additional cash outlay, so not a dividend
sale of securities
- share ownership in a corp is freely exchanged
- some situations when free share exchanges may not be the case
Closely Held Corps (restrictions on sales of securities)
- buy/sell arrangements- Sh agrees to offer his shares to either the corp or other SH or a specified 3p
- right of first refusal- current Sh have right to decide if they want to buy shares at the same price negotiated with a 3P
- SH or corp consent required- SH to get corp’s consent prior to sale; valid if consent requirement is there to prevent violating state/fed law
- 3P approval required
- restrictions as to whom shares can be transferred ok so long as those are reasonable
- restrictions requiring maintenance of close corp or subchapter S- corp can stipulate that buying SH maintain the corp status
