Fractional Shares

  1. Law
  2. Georgia Code
  3. Corporations, Partnerships, and Associations
  4. Business Corporations
  5. Shares and Distributions
  6. Shares
  7. Fractional Shares

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  1. A corporation may:
    1. Issue fractions of a share or pay in money the value of fractions of a share;
    2. Arrange for disposition of fractional shares by or for the account of the shareholders;
    3. Issue scrip in registered or bearer form entitling the holder to receive a full share upon surrendering enough scrip to equal a full share.
  2. Each certificate representing scrip must be conspicuously labeled "scrip" and must contain the information required by subsection (b) of Code Section 14-2-625.
  3. The holder of a fractional share is entitled to exercise the rights of a shareholder, including the right to vote, to receive dividends, and to participate in the assets of the corporation upon liquidation. The holder of scrip is not entitled to any of these rights unless the scrip provides for them.
  4. The board of directors may authorize the issuance of scrip subject to any condition considered desirable, including:
    1. That the scrip will become void if not exchanged for full shares before a specified date; and
    2. That the shares for which the scrip is exchangeable may be sold and the proceeds paid to the scripholders.

(Code 1981, §14-2-604, enacted by Ga. L. 1988, p. 1070, § 1.)

Law reviews.

- For article discussing rights pertaining to and value of fractional shares under the Georgia Business Corporation Code, see 3 Ga. L. Rev. 11 (1968).

COMMENT

Source: Model Act, § 6.04. This replaces former § 14-2-88.

Subsection (a) authorizes handling fractional shares in various ways, including:

(1) The corporation may issue scrip instead of fractional shares. As subsection (c) provides, scrip confers none of the substantive rights of shares, but only authorizes holders to combine scrip certificates in amounts aggregating a full share and then to exchange them for a full share. This aggregation must occur within the time and subject to the conditions set initially by the board of directors and stated in the scrip certificate. Scrip that is not combined and exchanged may become void, authorized by subsection (d).

(2) The corporation may authorize the immediate sale of all fractional share interests, thereby avoiding the expense and delay of scrip and the inconvenience of recognizing fractional shares.

Under this section fractional shares may be certificated or uncertificated. There is no difference in treatment of certificated or uncertificated shares for this purpose. See Sections 14-2-625 and 626.

Cross-References Redemption, see §§ 14-2-601 &14-2-631. Share dividends, see § 14-2-623.

RESEARCH REFERENCES

Am. Jur. 2d.

- 18A Am. Jur. 2d, Corporations, § 844.

C.J.S.

- 18 C.J.S., Corporations, § 185 et seq.

ALR.

- Right to issue corporate stock without voting power, 21 A.L.R. 643.

Issuance by corporation of new stock certificates without requiring surrender of old, 61 A.L.R. 436; 150 A.L.R. 148.

Voting of jointly held or fractional shares in corporation, 98 A.L.R.2d 357.

PART 2 ISSUANCE OF SHARES

14-2-620. Subscription for shares before incorporation.

  1. A written subscription for shares entered into before incorporation is irrevocable for six months unless the subscription agreement provides a longer or shorter period or all the subscribers agree to revocation.
  2. The board of directors may determine the payment terms of subscriptions for shares that were entered into before incorporation, unless the subscription agreement specifies them. A call for payment by the board of directors must be uniform so far as practicable as to all shares of the same class or series, unless the subscription agreement specifies otherwise.
  3. Shares issued pursuant to subscriptions entered into before incorporation are fully paid and nonassessable when the corporation receives the consideration specified in the subscription agreement.
  4. If a subscriber defaults in payment of money or property under a subscription agreement entered into before incorporation, the corporation may collect the amount owed as any other debt. Alternatively, unless the subscription agreement provides otherwise, the corporation may rescind the agreement and may sell the shares if the debt remains unpaid more than 20 days after the corporation sends written demand for payment to the subscriber.
  5. A subscription agreement entered into after incorporation is a contract between the subscriber and the corporation subject to Code Section 14-2-621.

(Code 1981, §14-2-620, enacted by Ga. L. 1988, p. 1070, § 1.)

Law reviews.

- For article discussing guidelines governing share subscription agreements, see 3 Ga. L. Rev. 11 (1968).

COMMENT

Source: Model Act, § 6.20. This replaces former § 14-2-83.

Subsection (a) is substantially identical to former § 14-2-83(a). It provides that preincorporation subscriptions in writing are irrevocable for six months unless the subscription agreement provides that they are revocable or that they are irrevocable for some other period, or unless all the subscribers agree to revocation. In essence, there is an irrevocability agreement among all of the subscribers. The terms of this contract are set forth in subsections (b) and (d).

Subsection (b) is substantially similar to former § 14-2-83(c). Subsection (b) provides that after incorporation the board of directors may determine the payment terms of subscriptions, but that calls must be uniform so far as practicable as to all shares of the same class or series unless the subscriptions provide otherwise. Subsection (d) provides alternative methods of enforcement of preincorporation subscriptions by the corporation.

Subsection (c) is clarifying, and states that shares are fully paid and nonassessable when the consideration called for in the subscription agreement is paid. This represents a major departure from the old legal capital rules of former § 14-2-84(a), which required shares with par value to be issued for consideration not less than the par value of the shares.

Subsection (e) clarifies that post-incorporation subscription agreements are also valid.

Cross-References Consideration for shares, see § 14-2-621. Effective date of notice, see § 14-2-141. "Notice" defined, see § 14-2-141.

JUDICIAL DECISIONS

Editor's notes.

- In light of the similarity of the statutory provisions, decisions under former Code 1993, § 22-504 and former Code Section 14-2-83, which were repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, are included in the annotations for this Code section.

Stock subscription agreements enforceable only if written.

- An alleged oral promise to pay for stock is unenforceable under former Code 1933, § 22-504 (see now O.C.G.A. § 14-2-620), which requires enforceable stock subscription agreements to be in writing. Super Valu Stores, Inc. v. First Nat'l Bank, 463 F. Supp. 1183 (M.D. Ga. 1979) (decided under former Code 1933, § 22-504).

Cited in Putnam v. Williams, 652 F.2d 497 (5th Cir. 1981).

RESEARCH REFERENCES

Am. Jur. 2d.

- 18A Am. Jur. 2d, Corporations, § 475 et seq.

C.J.S.

- 18 C.J.S., Corporations, §§ 249, 250, 252, 279.

ALR.

- Liability of corporation on contracts of promoters, 17 A.L.R. 452; 49 A.L.R. 673; 123 A.L.R. 726.

Binding effect of subscription to stock in corporation to be formed, 61 A.L.R. 1463.

Infant's rights and liabilities on subscription to or purchase of corporate stock, 64 A.L.R. 972.

Liability under trust-fund doctrine of subscribers to stock of corporation the charter of which has been canceled for reasons other than insolvency, 71 A.L.R. 103; 90 A.L.R. 1350.

Necessity and sufficiency of notice of withdrawal of subscription to stock in projected corporation, 71 A.L.R. 1345.

Liability of promoters for fraud or misrepresentation to persons subscribing for shares after formation of corporation, 72 A.L.R. 355.

Fraud: necessity for knowledge of falsity of representation as to value, inducing subscription to or purchase of corporate stock, or other securities, 73 A.L.R. 1120.

Construction, application, and effect of statutes giving corporation a lien on shares of its stockholders for debts due from stockholders to corporation, 80 A.L.R. 1338.

Validity and effect of extrinsic agreement absolving one, in whole or part, from liability on subscription to corporate stock, 81 A.L.R. 198.

Right of action to recover purchase price under sale of corporate stock where title has not passed as affected by provision of Sales Act, 99 A.L.R. 275.

Validity of release, cancellation, or compromise of unpaid subscription for stock by corporation or its representatives, 101 A.L.R. 231.

Disposition of interest or rights in corporation represented by stock the owners of which cannot be found, 101 A.L.R. 670.

Consideration for subscription agreements, 151 A.L.R. 1238.

Enforcement of stock subscription after suit on note of subscriber is barred by statute of limitations, 11 A.L.R.2d 1380.

Applicability of Blue Sky Laws to preincorporation subscriptions, 50 A.L.R.2d 1103.


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