Stocks: carry ownership and control interests. Can be common or preferred. Must have at least one class of voting stock.
Debt securities: do not carry ownership or control interests.
Issuance of stock
May issue only such stock authorized in the certificate of incorporation. Cert. may deny, limit, or otherwise define voting rights of the stocks.
Consideration: money or other property, tangible or intangible, services rendered to corp, or binding promise to pay price. Stock with par value may not be issued for less than the par value. If it does, shareholder is liable to corporate creditors for the difference.
Stock subscriptions: Promise to buy stock once corp comes into existence. Must be in writing and signed by subscriber. Irrevocable for three months.
Authorized and perameters set by board. Implementation of distribution may be delegated
Shareholders may demand distribution only in face of director bad faioth.
- may not be made by insolvent corp
- may not be made contrary to certificate of incorporation
- may be made out of surplus only (i.e., can't distribute beyond stated capital)
Paid to those holding shares on a date of record or the date of distribution authorization.
Sale of securities
Shareholder may sell at any time to any one at any price, subject to certain restrictions:
- First option restrictions (must offer to corp first)
- Consent restrictions (consent from other shareholders required, if consent can't be withheld)
- Location restrictions
Federal causes of action against sale of securities
Rule 10b-5 actions
(for Fraudulent sale of stock or security):
Plaintiff entitled to
- Plaintiff purchased or sold security
- transaction involved interstate commerce (including purchase by telephone, mail, or email)
- defendent engaged in fraudulent or deceptive conduct (untrue statement of material fact or failing to state material fact when there is duty to do so)
- plaintiff relied on the conduct
- plaintiff suffered harm as a result of the conduct.
: difference btwn stock value at time of fraud and price plaintiff paid or received; recission. No punitive damages
Rule 16(b) action
(corporate insider must return short-swing profits):
- Where, during six-month period, Corporate insider (directors, officers, and shareholders with more than 10%) of corps traded on national securities exchange that have more than $10 million in assets or more than 500 shareholders buys and sells his corporation's stock must return profits made.
- Profits computed by matching highest sale price with lowest purchase price during the sixth month period.
For more than 5%: acquirer must file statement with SEC revealing ownership interst, source of funding, and purpose for acquiring the stock.
Must also provide specific shareholder rights