Stock and Distributions Flashcards
(12 cards)
What are Authorized Shares?
The maximum number of shares that the directors can sell, as set in the articles of incorporation.
What are Issued Shares?
The number of shares from the authorized pool that the directors have actually sold.
What are Outstanding Shares?
Shares that were once issued to shareholders and still remain in the possession of the shareholders (not reacquired by the corporation). Only outstanding shares are typically voted.
What are Treasury Shares?
Stock previously issued to shareholders, but then reacquired by the corporation.
What is Watered Stock?
Watered Stock occurs when a corporation issues stock with a par value but sells it for less than the stated par value.
Shareholders who bought the watered stock are liable to the creditors of the corporation for the difference.
What are Stock Subscriptions?
Agreements made by individuals in advance to buy stock before the corporation is formed. These agreements are generally irrevocable for six months prior to incorporation.
What are Preemptive Rights?
Preemptive rights give shareholders the right to acquire new stock to maintain their percentage of ownership any time new shares are issued.
In most jurisdictions, shareholders do NOT have preemptive rights unless negotiated or included in the articles.
Who has the authority to declare dividends?
The board of directors has the authority to declare dividends (usually cash) or buy back shares. Shareholders have NO right to dividends.
Under what circumstances can the board NOT declare dividends?
The board CANNOT declare dividends if the corporation is insolvent or if issuing the dividend would make the corporation insolvent.
Directors who authorize unlawful dividends are personally liable to the corporation for the unlawful amount.
Are there restrictions on the sale of securities by shareholders?
Generally, shareholders can sell shares freely, but there are exceptions for closely held corporations and federal restrictions.
What are the different types of shares that a corporation can have?
Authorized, issued, outstanding, and treasury shares.
What are the requirements for stock sales restrictions in closely held corporations to be enforceable?
For restrictions in closely held corporations to be enforceable, they must be conspicuously noted on the stock certificate or the person against whom enforcement is sought must have known of the restriction.
Test of reasonableness
