CORPORATIONS-BASIS FOR PREEMPTIVE RIGHTS

Authors

Abstract

Defendant corporation's authorized capital stock consisted of 800 shares of common stock, 76 shares of which remained unissued. Over the objection of the plaintiff, the directors of the corporation authorized the issue of 50 shares of the 76 to a salesman in satisfaction of a debt due him from the corporation, the remaining 26 shares to one of the directors for cash with which to meet corporate indebtedness. No contest for corporate control was afoot. No opportunity was given to the shareholders generally to purchase such shares. Later the faction of the individual defendants to whom said 26 shares had been issued acquired control by purchase of stock including said 50 shares from the salesman. Plaintiff sued to compel the individual defendants to return the 76 shares to the defendant corporation as having been improperly issued and to restrain the individual defendants from voting thereon. From a judgment of the appellate division, affirming a judgment of dismissal by the lower court, plaintiff appeals. Held, the rule as to preemptive rights is not violated where unissued shares of the original authorized issue are issued not for the purposes of expansion hut for carrying on the business; nor was there any inequitable dealing as to create a breach of the directors' fiduciary relation. Dunlap v. Avenue M Garage and Repair Co., 253 N. Y. 274, 170 N.E. 917.

Recommended Citation

CORPORATIONS-BASIS FOR PREEMPTIVE RIGHTS, 29 Mich. L. Rev. 107 (1930).
Available at: https://repository.law.umich.edu/mlr/vol29/iss1/17