September 19, 2021

Volume XI, Number 262

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What Makes "Common Shares" Common?

California's General Corporation Law refers to "common shares" rather than "common stock".  What makes shares "common shares"?  Section 159 defines "common shares" as "shares which have no preference over any other shares with respect to distribution of assets on liquidation or with respect to payment of dividends".   Note that under the statute, the fact that a class of shares has greater voting rights does not make it any less common than a class with lower or no voting rights.  If a corporation has only one class of shares authorized, they will necessarily be "common shares".

The GCL does not attach many consequences to classification of shares as "common shares", but it is important to know what they are in several situations.   For example, Section 402(c) prohibits a corporation from issuing or redeeming redeeming redeemable common shares unless the corporation at the time has outstanding a class of common shares that are not subject to redemption.  There are three exceptions to this prohibition under the statute pertaining to specific situations.  

What if shares do not meet the definition of "common shares"?  Such shares are by apophasis "preferred shares".  Cal. Corp. Code § 176.

© 2010-2021 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume XI, Number 75
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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
Partner

Keith Bishop works with privately held and publicly traded companies on federal and state corporate and securities transactions, compliance, and governance matters. He is highly-regarded for his in-depth knowledge of the distinctive corporate and regulatory requirements faced by corporations in the state of California.

While many law firms have a great deal of expertise in federal or Delaware corporate law, Keith’s specific focus on California corporate and securities law is uncommon. A former California state regulator of securities and financial institutions, Keith has decades of...

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