Business Lawyer Litigator | Palo Alto | Law Office of Isaac H. Winer
Business Lawyer Litigator | Palo Alto | Law Office of Isaac H. Winer
Description: Law Blog - Business Law & Litigation
Law Blog – Business Law & Litigation
Did you know that selling stock in exchange for an unsecured promissory note may be unlawful, void or voidable? In an area like Silicon Valley where stock may be worth a fortune from the second a company is born, companies might think to be creative in order to sell stock to a party that’s unable or unwilling to pay large sums for it immediately. One might think that a safe course is to sell the stock for a promissory note to pay for the stock later, such as when it’s worth more than the sum of the note.
However, a somewhat obscure law in California, which is echoed in other states, makes it unlawful for a corporation to sell or issue stock in exchange for a promissory note (a debt) that is not secured by property other than the stock itself. Section 409 of the California Corporations Code makes it unlawful for a California corporation to sell or issue stock for a promissory note that is not “adequately secured by collateral other than the shares acquired.” Thus, a company cannot sell or issue stock for
Business Lawyer Litigator | Palo Alto | Law Office of Isaac H. Winer
Business Lawyer Litigator | Palo Alto | Law Office of Isaac H. Winer