Legal Question in Business Law in California

Re: Stock of a close corporation

Disclaimer: The materials provided below are informational and should not be relied upon as legal advice.

A corporation cannot issue share beyond is authorized for issuance. If additional shares need to be issued, after obtaining shareholder approval you an amend the articles of incorporation to allow additional shares to be issued. You should consult your own attorney to protect your legal rights.

Re: Stock of a close corporation

Since the corporation CANNOT issue more shares than authorized - it absolutely lacks the legal power to do so - those additional certificates or paperwork purporting to be shares, or to entitle someone to shares, are void.

If the question were, "What is the consequence of a closely-held corporation's ATTEMPTED issuing of stocks in excess of authorized number?" I would say it depends upon whether the officers and directors acted in good faith, or whether they acted negligently or fraudulently. Anyone injured by an overissue or attempt to overissue may have a remedy.

By the way, please note that "close corporation" and "closely-held corporation" are not synonymous terms. There is some overlap, to be sure, but a "close corporation" is a creature of statute (see Corporations Code section 158) whereas "closely-held corporation" is somewhat vague, like "a partly cloudy day."