Definition§
Overissue occurs when a corporation issues more shares of capital stock than it is authorized by its charter or corporate agreements. This situation can lead to legal implications, dilution of existing shares, and financial discrepancies. Both the registrar and the transfer agent play critical roles in ensuring that an overissue does not occur by meticulously managing and tracking issued shares.
Examples§
- Example 1: Company ABC is authorized to issue 1,000,000 shares of common stock. Due to administrative oversight, the company issues 1,050,000 shares. This 50,000 share discrepancy constitutes overissue.
- Example 2: During a rush to bolster capital quickly, Tech Corporation mistakenly issues 200,000 additional shares without proper authorization, leading to a crisis management situation where the excess shares must be retracted and rectified.
- Example 3: A startup, initially authorized to issue 500,000 shares, mistakenly prints and sells 550,000 shares due to system oversight. This results in legal scrutiny and the startup needs to correct the share registry with the help of its registrar and transfer agent.
Frequently Asked Questions§
Q: Why is overissue of shares problematic?
A: Overissuing shares can lead to financial and legal issues such as dilution of existing shares’ value, potential lawsuits from shareholders, regulatory penalties, and breaches of corporate governance.
Q: Who is responsible for preventing overissue?
A: The corporation’s registrar and transfer agent are responsible for tracking and managing the issuance of shares to ensure that the total number of shares issued does not exceed the authorized limit.
Q: What happens if a company overissues shares?
A: The company must retract the excess shares, correct its share registry, possibly face regulatory penalties, and manage potential legal actions from affected shareholders.
Q: Can overissued shares be corrected?
A: Yes, overissued shares can be corrected by retracting them and adjusting the records maintained by the registrar and transfer agent.
Q: Is overissue common?
A: While not extremely common due to stringent controls, overissue can occur due to human error or oversight in the corporate governance process.
Related Terms§
- Registrar: An agent, typically a bank or trust company, responsible for maintaining the registry of a corporation’s shareholders, ensuring accuracy, and preventing overissue.
- Transfer Agent: An entity that manages the issuance, transfer, and cancellation of certificates representing securities, working closely with the registrar to prevent overissue.
- Capital Stock: The total amount of stock that a corporation is authorized to issue, including both common and preferred shares.
- Authorized Shares: The total number of shares that a corporation is permitted to issue as outlined in its corporate charter.
- Issuance: The process by which a corporation distributes its shares to shareholders or the public.
Online References§
Suggested Books for Further Studies§
- Corporate Finance by Stephen A. Ross, Randolph W. Westerfield, and Jeffrey Jaffe
- Principles of Corporate Governance by John W. Hendrikse and Leigh W. Hendrikse
- The Law of Corporations in a Nutshell by Richard D. Freer
Fundamentals of Overissue: Corporate Finance Basics Quiz§
Thank you for exploring the essentials of overissue and testing your knowledge with our quiz. Continue your studies to deepen your understanding of corporate governance and financial management!
