Auditing Authorized Corporate Shares Prior to Equity Commitments
Auditing authorized corporate share counts against executed commitments identifies unallocated equity deficits prior to legally binding equity issuances.
void stock grants
Meaning
Condition of stock issuances that are legally ineffective due to procedural failures creates a significant risk to corporate stability. These void stock grants might occur if shares were issued without board approval or in excess of the authorized amount in the charter. A truly void grant cannot be easily fixed by a simple board vote and may require judicial intervention.
Legal Status
A void grant is treated as if it never happened in the eyes of the law. This means the person holding the stock does not actually own a portion of the company and has no voting rights. Such status creates massive uncertainty during an exit where every share must be accounted for.
Consequence Management
Discovering void grants usually happens during the due diligence process for a sale or initial public offering. The company must then use specialized legal procedures to attempt to validate the shares. If the shares cannot be validated, the company may owe the intended holder the value of the stock in cash.
This creates a financial liability that can derail a transaction or reduce the final payout to other shareholders.
Prevention Measure
Strict adherence to board formalities and constant monitoring of the share count prevents these errors from occurring. Every grant must be backed by a specific resolution and checked against the available authorized shares. Detailed record-keeping is the only way to ensure that every share on the cap table is legally valid.