Legal Question in Securities Law in California

A company with one class of stock and 75 shares of stock wants to raise money by offering to sell 25 shares to current existing shareholders. The board wants to propose this to the shareholders for vote, stating that the company will announce that 25 shares are for sale, and invite bids from the shareholders for the # and $/sh. Upon receipt of the bids, the company will sell to the highest bidder. Is this legal in California and under federal securities laws?


Asked on 5/03/11, 8:39 pm

1 Answer from Attorneys
Bryan Whipple Bryan R. R. Whipple, Attorney at Law

Securities lawyers are properly reluctant to say that any plan for the issuance and/or sale of securities is lawful without very full information about the prospective issuer, the issue, and the prospective issuees. I would encourage the company to retain securities counsel. Nevertheless, the concept and framework suggests that this company is on the right track. Any issuance of shares carries with it certain responsibilities, including full disclosure and compliance with Corporations Code section 25102(f) and its notice requirements, if applicable, which is likely. Transactions with existing shareholders of a closely-held company are much more likely not to require extensive pre-issue requirements. Be sure the company does not exceed its authorized number of shares per its incorporation documents.

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Answered on 5/03/11, 9:25 pm


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