Corporations: Issuance Of Stock

Front 1

Issuance of stock occurs when a corporation sells its own stock to raise capital.

Subscription: written, signed offer to buy stock from corporation

Preincorporation subscriptions are irrevocable for 6 mos unless it says otherwise or all subscribers agree

Back 1

Corporation and subscriber become obligated under subscription agreement when corp notifies subscriber in writing

Subscriber who pays for stock --> stockholder

Front 2

Form of Consideration- very liberal in TX

"Any tangible or intangible benefit to corporation" --> includes money (cash/equiv); discharge of debt, property, services already rendered for corp, notes/contracts for future services

Back 2

Prohibited: anything else --> "unpaid stock" (water)

Front 3

Amount of consideration

Par = "minimum issuance price" (par stock not required)
No par means "no min. issuance price" and board can set any price

Back 3

Consequences of issuing par stock for less than par value ("watered stock"):

Directors liable if knowingly authorized issuance, buyers liable (no defense, charged w/notice); 3d P not liable if didn't know about water

*Treasury stock: stock previously issued and reacquired by corporation. Corporation can resell it. Treat treasury stock as no par!

Front 4

Pre-emptive Rights

Right of existing common stock shareholder to maintain ownership % by buying stock whenever new issuance of stock FOR MONEY (cash/equiv)

Back 4

If cert. of formation silent as to PR, existence of rights depends:

If formed before 9/1/03, yes
If formed on or after 9/1/03, no

Rights don't attach if new issuance is w/in 6 mos of corp formation (unless cert says otherwise)