Issuance of Stock Flashcards
Issuance
When a corp. sells its own stock ( a way for the corp. to raise capital)
Subscriptions
Written offers to buy stock from corporation
Revocation of Subscriptions
1) Pre-incorporation subscriptions are irrevocable for 6 months
2) Post-incorporation subscriptions are revocable until accepted by the corp.
3) At what point are the corp. and the subscriber obligated under a subscription agreement? when the board accepts the offer
Consideration
What must the corporation receive when it issues stock?
Forms of Consideration
1) Every state agrees that money (cash or check), tangible or intangible property, and services already performed for the corporation are ALWAYS good.
2) Split of authority as to whether promissory notes and future services are appropriate forms of consideration
Amount of Consideration
1) Par - minimum issuance price for stock
2) No par - no minimum issuance price. Board of directors sets a price
3) Treasury Stock - A stock the company issued and then reacquired. It is considered authorized and the corp. and ca then resell it. If it does, the board sets any issuance price it wants.
“Watered” Stock
C Corp. issues 10,000 shares of $3 par to X for $22,000. The corp wants to recover the $8,000 of “water.” Who is liable?
1) Directors? yes, if they knowingly authorized the issuance (sold for less than par)
2) X (the guy who bought the stock)? YES, no defense
3) What if X transfers the stock to a third party. Third party is not liable if she did not know about the water
Pre-Emptive rights
The right of an existing SH of common stock to maintain her percentage of ownership by buying stock whenever there is a new issuance of stock for MONEY.
S owns 1,000 shares of C Corp. There are 5,000 shares outstanding (meaning S owns 20% of shares now). C Corp. is planning to issue an additional 3,000 shares. IF S has pre-emptive rights then S has the right to
buy 600 shares (20% of 3,000)
