YSC, Title 23.  Corporations, Partnerships & Associations
 
 
 
Chapter 4:  Stocks

401.   Certificate; form.
402.   Issuance of certificates of stock for fully paid shares.
403.   Execution of certificate.
404.   Consideration for shares.
405.   Consideration for shares having par value.
406.   Stock, classes.
407.   Shares without par value.
408.   Shares are personal property.
409.   Transfers of stock sold, pledged, assigned, or hypothecated prior to
             attachment or  execution.
410.   Increase of capital, authorization; certificate to be filed with Registrar.
411.   Reduction of capital.

     401.  Certificate; form.
     Every certificate of stock issued by a corporation shall plainly state:

     (a)  The name of the record holder of the shares represented thereby;

     (b)  The number, designation, if any, and class or series of shares represented thereby;

     (c)  The par value, if any, of the shares represented thereby, or a statement that the shares are without par value; and

     (d)  If the corporation has issued shares of preferred stock in addition to shares of common stock, a summary of the preferences, voting powers, restrictions, and qualifications of the preferred stock or a statement of the place where the information may be obtained.

Source:  YSL 2-51 31, modified.

     402.  Issuance of certificates of stock for fully paid shares.
     A certificate of stock shall not be issued until the shares represented thereby have been fully paid for.

Source:  YSL 2-51 32.

     403.  Execution of certificate.
     Every certificate of stock issued by a corporation shall be executed by being sealed with the corporate seal and by being signed on behalf of the corporation by the president or a vice-president and by the secretary or an assistant secretary or the treasurer or an assistant treasurer of the corporation.

Source:  YSL 2-51 33.

     404.  Consideration for shares.
     No corporation shall issue any share of stock, whether with or without par value, except in consideration of any one or any combination of more than one of the following:

     (a)  Money paid;

     (b)  Labor done;

     (c)  Services actually rendered;

     (d)  Debts or securities cancelled;

     (e)  Tangible or intangible property actually received; or

     (f)  Amounts transferred to capital from any surplus of the corporation upon the issue of shares as a stock dividend.  Nothing in this section shall be construed to limit the power of any corporation to split up or subdivide or redivide its shares into a greater or lesser number of shares without transferring surplus to stated capital.

Source:  YSL 2-51 34.

     405.  Consideration for shares having par value.
     No corporation shall issue any share of stock having a par value, other than as a stock dividend or as a result of a stock split or in respect of a convertible security, for any consideration, whether cash, labor done, services actually rendered, debts or services cancelled, or tangible or intangible property actually received, the value of which is less than the par value of the share.  Nothing in this section shall prevent any corporation from making or paying bona fide underwriting discount or commission or otherwise assuming and paying the cost of the issue and distribution of any share or shares of stock.

Source:  YSL 2-51 35.

     406.  Stock, classes.
     A corporation incorporated under the laws of the State with power to issue stock may issue any number of classes of stock with such terms, preferences, voting powers, restrictions, and qualifications thereof as shall be fixed in its articles of incorporation or charter or as shall be fixed by a resolution authorizing the issue thereof adopted by the affirmative vote of the holders of two-thirds of all its stock or, if two or more classes of stock have been issued, of the holders of two-thirds of each class of stock outstanding and entitled to vote.  The articles of incorporation or charter may authorize the board of directors to issue authorized and unissued shares of any class and to divide authorized and unissued shares of any class into series and issue any such series and to fix the terms, preferences, voting powers, restrictions, and qualifications of any class or series of any class. Whenever the terms, preferences, voting powers, restrictions, and qualifications are fixed by resolution of the board of directors or stockholders without amendment to the articles of incorporation or charter, a certified copy of the resolution shall be filed with the Registrar of Corporations.

Source:  YSL 2-51 36.

Cross-reference:  The statutory provisions on the Registrar of Corporations are found in chapter 2 of this division.

     407.  Shares without par value.

     (a)  A corporation organized under the laws of the State with the power to issue stock may issue shares of stock with par value or shares of stock without par value or both, of any class or classes, to the extent that the articles of incorporation so permit; provided that no corporation may have shares of a class with par value and also shares of the same class without par value.  In case of the issue of two or more classes of stock, if any or all thereof are without par value, the preferences, voting powers, restrictions, and qualifications thereof shall be as set forth in the articles of incorporation or shall be determined as provided in section 406.  Where the articles of incorporation permit the issuance of shares without par value, the statement in the articles of incorporation of the amount of capital stock of the corporation and of the limit of the extension thereof shall state the number of shares of stock without par value and the limit of the extension of the number of shares, and may contain provisions relating to the consideration for which shares without par value may be issued and relating to the capital to be attributable to shares without par value.

     (b)  A corporation may, by amendment to its articles of incorporation, change the shares of any class with par value, whether totally issued or partly unissued, into the same or a different number of shares without par value, and likewise may change the shares of any class without par value, whether totally issued or partly unissued, into the same or a different number of shares with par value; provided that in connection with any such change the capital of the corporation shall not be reduced without complying with section 411.

     (c)  Subject to any restrictions in the articles of incorporation, authorized but unissued shares without par value may be issued from time to time for such consideration as may have been approved by the holders of a majority of the then issued and outstanding shares of each class of the corporation, or as may have been approved by the board of directors either when acting under authority granted by the holders of a majority of the then issued and outstanding shares of each class or when acting under authority granted in the articles of incorporation; provided, that shares without par value issued upon the incorporation of a corporation may be issued for such consideration as may be approved by the incorporators prior to the filing of the articles of incorporation; provided, further, that the total consideration received for all the shares without par value issued upon the incorporation of a corporation shall include not less than $1,000.00 in cash.

     (d)  Whenever shares of stock without par value are issued by any corporation, the consideration received and to be received by the corporation for the issuance thereof shall constitute capital of the corporation; provided that if the articles of incorporation, or the stockholders by a majority vote, or the board of directors acting pursuant to lawful authority, provide or determine that a portion of such consideration shall be treated as paid-in surplus, then the portion so provided or determined shall be paid-in surplus and the remainder only shall constitute capital.  The total capital attributable to all the shares without par value issued upon the incorporation of a corporation shall be not less than $1,000.00.  Whenever shares of stock without par value are issued for consideration other than cash, the authority (stockholders or board of directors or incorporators) which provides for the issuance of the shares shall determine the value of the consideration, and the value so determined shall constitute capital with respect to the shares except to the extent that any portion thereof may be determined to be paid-in surplus as above provided. In case the value of the consideration has not been honestly and reasonably determined and in case the actual value thereof was less than the determined value, the shares for such consideration shall not be fully paid until the corporation receives, in addition to such consideration, the difference between the actual value thereof and the determined value thereof.  Whenever issued shares with par value are changed into shares without par value pursuant to subsection (b) of this section, the total par value of the shares so changed shall continue to constitute capital of the corporation, attributable to the shares without par value into which they are changed.  In case a corporation pays a stock dividend in shares of its stock without par value, the board of directors shall, in connection with the declaration of the stock dividend, determine the amount and the type of the surplus of the corporation which is capitalized by the issuance of the stock dividend, subject to any restrictions in the articles of incorporation.  The board of directors, subject to any restrictions in the articles of incorporation, may by resolution at any time increase the capital attributable to shares without par value by transferring to capital any surplus, however acquired or accumulated, in such amount and type as the board of directors shall determine, and in any such case the amount of surplus so transferred shall then and thereafter be added to and constitute a part of the capital of the corporation attributable to shares of its stock without par value. The capital of a corporation attributable to shares of its stock without par value may be reduced in the manner and with the effect provided in section 411.

     (e)  All fully paid shares of stock without par value of the same class shall be entitled to the same dividends and to the same assets upon dissolution and shall have the same preferences, voting powers, restrictions and qualifications, notwithstanding that some of the shares may have been issued for different consideration than others.

     (f)  When the total amount of the consideration for which a share of stock without par value is issued has been received by the corporation, or is in the possession of the corporation when the share is issued as a stock dividend or upon a change of shares, the share shall be fully paid and nonassessable, except as provided in subsection (d) of this section.  Until any share of stock without par value is fully paid, the corporation and the creditors thereof shall have the same full rights and remedies to enforce the full payment thereof as in the case of par value shares.

     (g)  Every certificate representing shares without par value shall state that the shares represented thereby are without par value.  In case of an increase in the capital of a corporation with or by the issuance of shares without par value, the certificate of increase provided for in section 410 need not show the matters required by subsection (d) in that section.  All other provisions of this division shall apply to corporations with shares without par value to the same extent that they apply to corporations with only par value shares.

Source:  YSL 2-51 37, modified.

Cross-reference:  Section 411 of this chapter is on reduction of capital.  Section 410 of this chapter is on "increase of capital, authorization; certificate to be filed with Registrar".

     408.  Shares are personal property.
     The shares of the several members in the stock of any incorporated company, whether owning real estate or otherwise, shall be deemed personal property.

Source:  YSL 2-51 38.

     409.  Transfers of stock sold, pledged, assigned, or hypothecated prior to attachment or execution.

     (a)  No attachment or execution laid or levied upon the shares of any defendant in the capital stock of a corporation standing on its books in his name shall in any way affect the right, title, or interest therein which has theretofore been acquired by any bona fide purchaser or bona fide pledgee to whom or to whose agent the certificate therefor has been delivered prior to the laying or levying of the attachment or execution; and in case, prior to the laying or levying of the attachment or execution, the shares have been pledged with and the certificate therefor has been delivered as aforesaid to a bona fide pledgee and the shares also have been assigned or hypothecated to a bona fide assignee, subject to the pledge, as security to any obligation or debt junior to the pledge, then the attachment or execution shall not in any way affect the right, title, or interest therein of the bona fide assignee.  The lien of any attachment or execution upon the shares of any defendant in the capital stock of the corporation standing on its books in his name shall be superior to the rights of any purchaser from or creditor of the defendant, except as otherwise provided in this section.

     (b)  A bona fide purchaser, upon filing with the corporation an affidavit stating the date or dates of the payment of the purchase price and the terms and conditions under which the stock was purchased, the balance of the amount, if any, owed upon the same at the exact time the attachment or execution was laid or levied upon the stock, and stating that the certificate therefor was delivered to him or his agent properly endorsed prior to the day, hour, and minute that the attachment or execution was levied, shall be entitled to a transfer into his name or the name of his nominee the shares of stock; provided, that if any amount is due on account of the purchase price of the stock at the time the attachment or execution was laid or levied, the lien of the attachment or execution shall extend to and continue upon the balance of the purchase price.  The balance of the purchase price, or such portion thereof as may be necessary to pay and satisfy the judgment, shall be withheld and paid to the levying officer on the levy of the execution in the action when due.

     (c)  A bona fide pledgee, upon filing with the corporation an affidavit that the certificate representing the stock was delivered to him or his agent properly endorsed prior to the day, hour, and minute of the attachment or execution as security for a debt or other obligation owed by the defendant to the pledgee and stating the nature of the obligation and, if the same is a debt, the amount thereof, shall be entitled to a transfer into his name as pledgee or to his nominee or into the name of a purchaser from the pledgee. The transfer made to a pledgee shall not operate to defeat the lien or levy of the attachment or execution upon the equity or interest of the defendant in the stock or its proceeds, but the lien shall continue and the plaintiff shall have the right, upon payment to the pledgee when due the amount for which he is holding the stock as security and also upon the payment to any junior assignee entitled to protection under the following paragraph of the amount when due for which the stock has been assigned, in that order, to secure the delivery of the stock and at the sale thereof under execution to reimburse himself out of the net proceeds thereof.

     (d)  If, prior to the laying or levying of the attachment or execution, the shares have been pledged with and the certificate therefor has been delivered to a bona fide pledgee and the shares also have been assigned or hypothecated to a bona fide assignee, subject to the pledge, as security for any debt or obligation junior to the pledge, then the bona fide assignee, upon filing with the corporation an affidavit that the stock was so assigned or hypothecated prior to the day, hour, and minute or the attachment or execution as security for a debt or other obligation owed by the defendant to the assignee and stating the nature of the obligation and, if the same is a debt, the amount thereof, shall be entitled to the protection of his junior lien upon such stock.

     (e)  The corporation making the transfer shall be free from all liability on account of any such transfer.  The liability, if any, if the transfer has been improperly made, shall be against the defendant, purchaser, pledgee, or endorsee, as the case may be, securing the issuance of a new certificate thereon.
 
Source:  YSL 2-51 39.

     410.  Increase of capital, authorization; certificate to be filed with Registrar.
     No increase or extension of capital stock of any corporation organized under the laws of the State, having authority under its articles of incorporation to increase its capital stock, shall be legal and effective unless the increase or extension has been authorized by vote of not less than two-thirds of all of the shares of stock, or if two or more classes of stock have been issued, of two-thirds of each class of stock, outstanding and entitled to vote at any meeting duly called and held for that purpose.  A verified certificate must be filed with the Registrar of Corporations, signed by any two authorized officers of the corporation, showing that the meeting had been properly called and held, that the increase or extension had been authorized by the required vote, and showing also:

     (a)  The present authorized capital stock of the corporation;

     (b)  The amount to which the capital stock may be increased or extended under its articles of incorporation or charter;

     (c)  The amount of increase or extension of the capital stock duly authorized by its stockholders; and

     (d)  In the case of stock having a par value, that not less than ten percent (10%) of the total authorized stock as increased has been paid in, in cash or property, or that the corporation holds cash or property of a value equal to ten percent (10%) of the total authorized stock as increased.  The increase of capital shall become effective and the capital of the corporation shall be and become increased on the date of filing of the certificate required by this section or on such later date as shall be specified in the certificate.  The Registrar of Corporations may charge a fee for the filing of such certificates.

Source:  YSL 2-51 40, modified.

Cross-reference:  The statutory provisions on meetings and voting are found in chapter 5 of this division.  The statutory provisions on the Registrar of Corporations are found in chapter 2 of this division.

     411.  Reduction of capital.

     (a)  Upon complying with the applicable requirements of this section, a corporation may effect a reduction of its capital or capital stock by reducing the authorized capital stock of the corporation or by retiring any shares of stock of any class or classes, or by the conversion of all of the shares of any class of convertible stock into shares of any other class, or by releasing or canceling subscriptions to its stock of any class or classes; provided, that no reduction of the capital of capital stock of any corporation shall be made in violation of the rights of the holders of stock of any class of the corporation as set forth in the articles of incorporation; and provided further that no reduction of the capital or capital stock of any corporation shall be made by the release or cancellation of subscriptions to any class or classes of its stock unless the assets of the corporation remaining after the release or cancellation equal in value the total par value of the remaining capital stock of the corporation, and unless the assets then equal in value twice the amount of indebtedness of the corporation.

     (b)  Any reduction of capital stock shall require the affirmative vote of the holders of not less than two-thirds of all of the shares of stock of the corporation issued and outstanding or if two or more classes are issued and outstanding, then of the holders of two-thirds of the shares of each class of stock outstanding and entitled to vote; provided, that in case shares of any class of stock of a corporation are subject to redemption or are convertible into shares of any other class of stock of the corporation pursuant to its charter or articles of incorporation, and if the provisions specify that all or any part of the shares of the class may be redeemed or converted other than by vote of stockholders, then any reduction shall not require a vote of stockholders, but may be effected as specified in such provisions.  Any reduction of capital or capital stock of a corporation pursuant to this subsection shall be subject to subsection (g).

     (c)  A verified certificate shall be signed by any two authorized officers of the corporation and shall be presented to the Registrar of Corporations, setting forth facts showing that the required vote or determination has been made, and certifying that no distribution of assets representing the surplus created by the reduction will be made at any time unless the remaining assets of the corporation then equal in value the total par value of the remaining stock of the corporation, and certifying that all other requirements of this section have been met.

     (d)  The posting of notice is not required where the reduction involves only a reduction in the authorized but unissued capital stock of the corporation, or the retirement of shares of stock of any class or classes acquired by the corporation in accordance with the provisions of law, or which have been surrendered pursuant to any right of conversion and in respect of which shares or securities of any other class or classes have been issued, and does not involve the retirement or reduction in par value of any shares which are issued and outstanding.  The Registrar shall enter the reduction of record in his office upon the filing of the verified certificate required in subsection (c).

     (e)  In case the reduction involves the retirement or the reduction in the par value of any shares which are issued and outstanding, or the release or cancellation of any stock subscription, then the Registrar, after receipt of the verified certificate, shall publish a notice of the proposed reduction in areas around the State and on the radio at least once a week for four consecutive weeks, commencing not more than ten days after receipt of the certificate. Upon the expiration of thirty days following the first publication of the notice, if no protest or objections to the proposed reduction have been filed with the Registrar by any person claiming to be a stockholder or creditor of the corporation, the Registrar shall enter the reduction of record.  Otherwise, the Registrar shall proceed to consider any objections made, and if he thereupon is satisfied that the required vote or determination has been made, he shall enter the reduction of record.  Prior to entering any reduction of record, the Registrar may require the payment of a fee covering expenses.

     (f)  Upon the entry of record by the Registrar of any reduction of the capital or capital stock of the corporation, the reduction shall stand effective as of the date of the original filing of the certificate, unless the corporation at the time of the filing of the certificate has requested that the reduction become effective on or as of some subsequent date, in which case the reduction shall become effective on or as of the requested date.

     (g)  A corporation may at any time or from time to time after the entry of record of a reduction of its capital or capital stock or after the effective date of the reduction, whichever is later, distribute among its stockholders any or all of the assets representing the surplus created by the reduction; provided, that no distribution shall be made at any time unless the remaining assets of the corporation then equal in value the total par value of the remaining capital stock of the corporation and unless the remaining assets of the corporation then equal in value twice the amount of the indebtedness of the corporation.

     (h)  In case any reduction pursuant to this section is made by retiring any shares of stock of any class or classes, the reduction may be made by retiring the shares of stock owned by the corporation without the necessity of retiring any shares of stock issued and outstanding in the hands of stockholders of the corporation.  In case any reduction pursuant to this section is made by retiring any shares of stock of any class or classes issued and outstanding in the hands of stockholders of the corporation, then, unless the charter or articles of incorporation creating the class of stock otherwise provides, or unless the vote or determination providing for the reduction with the consent of all the stockholders or the subsequent approval of the Registrar specifies the particular shares to be retired, each of the stockholders owning shares of the class or classes of which shares are to be retired shall be entitled to participate pro rata in the surrender of shares of stock of the class or classes for cancellation or retirement; provided that, insofar as the pro rata distribution is impossible without the retirement of fractional shares, the shares to be retired may be chosen by lot in such manner as is approved by the stockholders or the board of directors of the corporation.  If any stockholder fails to exercise his option to participate pro rata within thirty days after notice mailed to him by an authorized officer of the corporation, the corporation may accept any other shares in lieu thereof and retire the same.

     (i)  Nothing in this section shall be deemed or interpreted to permit any distribution to stockholders of any class in violation of the equal or prior rights of stockholders of another class, as set forth in the charter or articles of incorporation.
 
Source:  YSL 2-51 41, modified.

Cross-reference:  The statutory provisions on meetings and voting are found in chapter 5 of this division.  The statutory provisions on the Registrar of Corporations are found in chapter 2 of this division.
                                                                                                                                                                                                                                                                                                           
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