Issuance of Stock Flashcards
What is a debenture?
A loan, the repayment of which is not secured by corporate assets (creditor interest)
What is a subscription (for issuance)?
Written, signed offer to buy stock from the corporation
What are the rules for revocation of subscriptions?
- If pre-incorporation: Irrevocable for 3 months (unless agreement or permission by all other subscribers)
- If post-incorporation: Freely revocable until accepted by the corporation (when board accepts)
Can a corporation sell only to some subscribers but not others?
No
Sales must be uniform within each class or series of stock
What happens if a corporation accepts a subscription offer and the buyer defaults? [If Buyer has paid LESS than half purchase price and fails to pay within 30 days of written demand]
Corp keeps money and cancels the stock (becomes authorized but not issued)
What happens if a corporation accepts a subscription offer and the buyer defaults? [If Buyer has paid MORE than half the purchase price, and fails to pay within 30 days of written demand]
Corp must try to find a 3d party to pay the remaining balance
(If nobody found, treat as situation 1: Corp keeps $ and cancels the stock) (If buyer will pay extra, excess less expenses goes to the old buyer)
What are the five permitted forms of consideration for an issuance
- Money
- Tangible or intangible property
- Services already performed
- Binding obligation to pay money or property in the future
- Binding obligation to perform future services having an agreed value
What happens if stock is issued for no consideration?
It is unpaid stock, and treated as “water”
What is par value?
Minimum issuance price
Who sets the price of no-par stock?
BOD unless certificate specifically allows s/h to set the price
What is treasury stock?
Previously issued stock that has been reacquired
Treated as no-par, regardless of what it was at issuance
When is a board determination of the value of consideration for an issuance conclusive?
If made without fraud (if fraud, constitutes waste of corporate assets)
What is the consequence of issuing par stock for less than par?
It is watered stock
Who is liable for “water”
- Directors, if they knowingly authorized the issuance
- Buyers of stock from the corporation (with no defense) (3d party transferees not liable if acting in good faith—ignorance of the water)
What are pre-emptive rights?
Right of existing s/h to maintain ownership % by buying shares from new issuance of common stock for money
