Term
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Definition
| A written, signed offer to buy stock from the corporation. |
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Term
| What are the rules of subscription revocation? |
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Definition
PRE-INCORPORATION SUBSCRIPTION: is irrevocable for 3 months from date of subscription UNLESS:
1. Subscription provides otherwise.
OR
2. All subscribers agree to let you revoke.
Policy: so those forming a corporation can rely on monies being there.
POST-INCORPORATION SUBSCRIPTIONS: ARE revocable until accepted by corporation (when board accepts the offer). |
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Term
| What Happens When a Subscriber Defaults on Payment? |
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Definition
If Subscriber paid LESS than half of purchase price & failed to pay rest in 30 days of written demand: corporation can keep money paid & cancel shares. Stock becomes authorized & unissued (corporation can sell it).
If Subscriber paid MORE than half of purchase price & failed to pay rest in 30 days of written demand: corporation MUST try to sell the stock to someone else for cash (or binding obligation to pay cash):
• If can’t sell, then same as situation #1.
• If sells to someone who will pay more than remaining balance due, the defaulting subscriber recovers: any excess over what she agreed to pay MINUS corporation’s expenses in selling to new guy. |
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Term
| What is an "Issuance of Stock" & What are the Three Kinds of Issuances of Stock? |
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Definition
ISSUANCE OF STOCK occurs when a corporation selling its own stock (v. shareholder individually selling).
The Three kinds of Issuances of Stock are:
1. EQUITY SECURITY: A way corporation can raise capital. Investors buy stock and become holders of equity security and become owners of the corporation (comes with various rights).
2. DEBT SECURITY (i.e. bonds): where investor makes a loan to the corporation that is usually repaid with interest. Holder of a bond is a creditor and NOT an owner.
3. DEBENTURE: a loan where repayment is NOT secured by corporate assets. |
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Term
| What are the FIVE permitted forms of consideration of an issuance? |
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Definition
The FIVE permitted forms of consideration of an issuance are:
1. Money (cash or check)
2. Tangible or Intangible Property
3. Services already performed for corporation (i.e. help in forming contract).
4. A binding obligation to pay in the future in money or property.
5. A binding obligation to perform future services having an agreed value. |
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Term
What are "Unpermitted Forms of Consideration" for Issuance of stock?
What effect does an issuance of stock have when sold for an unpermitted form of consideration? |
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Definition
UNPERMITTED FORMS OF CONSIDERATION OF AN ISSUANCE: are anything other than five permitted forms.
The effect is, If paid in improper form, it will be considered unpaid stock and will be treated as WATER (Par value – Amount Stock was sold for). |
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Term
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Definition
| PAR is the minimum issuance price that corporation may sell stock for (can sell for more but NOT less than Par). |
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Term
| Can a Corporation Acquire Property by Selling Par Value Stock? |
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Definition
Yes. ACquiring Property by selling Par Value Stock is permitted so long as par minimum is met.
When board determines value of property to meet the consideration required for issuance of stock, the determination of value is conclusive UNLESS determination is made by fraud. |
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Term
| What are the Consequences of Issuing Par Stock For Less than Par Value? |
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Definition
The Consequences of Issuing Par Stock For Less than Par Value is:
1. The stock will be considered “WATER STOCK.”
2. The corporation/creditors can sue directors for the water stock (Par Value - Amount Stock was sold for).
3. Buyer of watered stock is liable (no defense) BUT If Buyer sold watered stock to 3rd party, 3rd Party NOT liable if she acted in good faith (did not know about the water). |
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Term
| What is a No Par Stock and what is one example of a No Par Stock? |
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Definition
No Par Stock means there is NO minimum price (can sell for any price). The board sets the price unless certificate states shareholders should do it.
One example of a No Par Stock is:
"TREASURY STOCK." Treasury Stock is a NO PAR STOCK that was previously issued and then reacquired by corporation )corporation may sell treasury stock).
Note: If certificate silent, then treasury stock is NOT considered new issuance of stock. |
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Term
| What are Preemptive Rights? |
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Definition
| Preemptive Rights are rights of an existing SH to maintain her percentage of ownership by buying stock whenever there is a NEW ISSUANCE of common stock for MONEY (cash or check) - NOT property. |
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Term
| If certificate is silent, what are NOT considered a "New Issuance of Stock"? |
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Definition
If certificate is silent:
Treasury Stock is NOT considered new issuance of stock.
Sale of shares (1) authorized by original certificate AND (2) sold w/in two years of formation is NOT considered new issuance of stock. |
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