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Delaware Corporation Law and Practice
 
Copyright 2016, Matthew Bender & Company, Inc., a member of the LexisNexis Group.


2-33 Delaware Corporation Law and Practice 33.syn


Title

Retirement of Stock and Reduction of Capital

Author

David A. Drexler; Lewis S. Black, Jr.; A. Gilchrist Sparks, III

Chapter Summary


ABSTRACT TEXT:

This chapter discusses Delaware corporate statutes governing retirement of stock and reductions of capital. These actions are not considered to be within the normal operations of corporate affairs, and may be incidental to an acquisition of the corporation's own shares by way of purchase, redemption, conversion, or exchange.

The chapter defines and differentiates terms related to retirement of stock and reductions of capital, including: surplus, impairment of capital, capital surplus, earned surplus, re-evaluation surpluses, impaired, deficit, and sufficient assets remaining after reduction.

Further, this chapter discusses the four permissible methods for reducing capital: (1) reducing or eliminating capital represented by shares of stock that have been retired; (2) applying to an otherwise authorized purchase or redemption of shares, some or all of the capital represented by the shares being acquired or any capital which has not been allocated to other shares; (3) applying to an otherwise authorized conversion or exchange some or all of the excess capital; and (4) transferring to surplus some or all of what may be described as the ''excess capital" of the corporation.

The chapter focuses on Method 4 because it has legal significance independent of any other statutory section; specifically, it permits reductions of such ''excess capital" without any retirement of shares and wholly independent of any acquisition of shares by the corporation. Next, the chapter defines ''excess capital" and examines the three possible sources from which it can be derived. The chapter also covers capital not allocated to shares, capital allocated to par value stock in excess of its par value, and capital allocated to stock without par value.

The chapter concludes by addressing Section 244(b), which provides that a reduction of capital does not affect the liability of stockholders for the payment of the entire subscription price of stock not fully paid. The chapter also includes a Statutory Appendix providing relevant statutes.

Delaware Corporation Law and Practice provides in-depth analysis of Delaware General Corporation Law--the nation's most influential law governing corporations. It offers expert analysis of key case law, discussions on emerging trends from the Delaware courts, and practical considerations. Because Delaware corporation law is essentially national law, this treatise is an indispensable tool for any corporate attorney seeking insight into the nuances of corporation law, or guidance on specific transactions.

CORE TERMS:

Delaware corporation law,Delaware corporate statutes,retirement of stock,reductions of capital,surplus,impairment of capital,earned surplus,capital surplus,reevaluation surpluses,impaired,deficit,sufficient assets remaining after reduction,purchase of shares,redemption of shares,conversion of excess capital,exchange of excess capital,excess capital transfer to surplus

RELATED CHAPTERS: (View)

See Chapter 17 for discussion on Section 154, which determines what portion of the consideration a corporation receives for its shares must be allocated to the capital account. See Chapter 19 for discussion on reissuance of treasury shares without formality.

OTHER RELATED PUBLICATIONS:

See Corporate and Commercial Practice in the Delaware Court of Chancery (Matthew Bender) for the rules and procedures unique to practicing before the Court of Chancery--the forum established specifically to the hear business disputes of Delaware corporations.

For practical guidance on critical corporate governance topics, consult Corporate Governance: Law and Practice (Matthew Bender).

See Professional Corporations and Associations (Matthew Bender) for authoritative guidance on forming, operating, and changing ownership of a professional corporation or association.

See Business Organizations with Tax Planning (Matthew Bender) for full coverage on the formation and operation of various business entities, particularly partnerships and corporations, along with comprehensive tax analysis.
 
 
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